FSA programs explained: Shallow losses
January 6, 2012
Happy New Farm Bill Year! Now, I know this is not the normal new year greeting that you may hear, but for those of you involved in agriculture, I am sure that you are aware of the expiration of the 2008 Farm Bill and have been keeping tabs on talk about the new farm bill. Here at the Farm Service Agency (FSA), a new farm bill means new programs, new forms and new challenges.
I have been keeping a fairly close watch on new proposals submitted by varying organizations to the Agricultural Committee since the inception of the Super Committee. Most of these proposals have had two similar themes: budget savings and shallow loss coverage.
The shallow loss coverage mentioned in the 2012 Farm Bill proposals seem to have expanded upon a program that the FSA is currently administering called Supplemental Revenue Assistance Payments (SURE) program. The FSA is currently taking applications for SURE for losses suffered during the 2010 crop year.
One of the most promising improvements that have been proposed is the change to establishing the value of crops. Currently, under the SURE Program, harvested crop prices are established using a national average market price. In order to set this price, the FSA must wait until the end of the marketing year before the price may be set. Because this can take up to a year after harvest, the SURE program is not very responsive in providing compensation quickly after a disaster event. This is why the FSA is currently taking applications for the 2010 crop year. Applications for the 2011 crop year should be announced around the same time next year.
The term shallow loss refers to losses that are not significant enough to trigger an indemnity through your insurance. Depending upon the level of coverage that you choose, your shallow losses may feel like wading in the deep end of the pool. The premise of crop insurance is that farmers will insure their crops at a level that provides some type of financial security. However, most producers that I know purchase crop insurance based upon the cost of coverage.
If new farm bill proposals calculate payments for crop losses similar to the SURE program, producers should be aware that purchasing low levels of coverage will equate to low levels of a safety net. In the SURE program, for example, the program guarantee is established by increasing a producer’s crop insurance guarantee by about 15 percent, depending upon the type of coverage. Therefore, a producer that purchases 50 percent yield protection with 100 percent price protection could still suffer losses of up to 40 percent or more and still not receive any compensation for their shallow losses.
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The point that I am trying to make clear is that when you purchase crop insurance, you are also establishing the level of your safety net. I do not know what the new farm bill will bring. I do know that the 2008 Farm Bill only authorized our current disaster programs that compensate for crop losses, livestock losses and forage losses through 2011. This means that until a new farm bill is authorized, the safety net provided by those programs does not exist.
James R. Neill is the County Executive Director for the Farm Service Agency in Meade County (SD). Questions about disaster programs or any other program administered by the Farm Service Agency should be directed to your local Farm Service Agency Service Center.