REMARKS BY ADMINISTRATOR ELDON GOULD
At the 2007 Crop Insurance Industry Annual Convention
Feb 21, 2007

Thank you. It’s a pleasure to be here to speak with you about USDA’s new Farm Bill Proposal, as well as give you a program update for RMA.

As you may know, this is the year that Congress must reauthorize a Farm Bill. The Farm Bill covers a number of areas from commodities to specialty crops, from energy to research, from trade to food stamps and from conservation to rural development. This is the year -- if we don't pass the Farm Bill this year, literally we revert back to the 1949 Farm Bill, which nobody wants to do. So, we want to see a Farm Bill passed this year.

In putting the farm bill proposals together, USDA aimed to make farm policy more equitable, predictable and better able to withstand challenge.

The 2002 farm bill was the right policy for the times. It was the first-ever farm bill with an energy title, and it increased conservation spending by about 80 percent.

When it was developed, commodity prices were low, exports had declined for several years in a row, and the debt-to-asset ratio was at about 15 percent.

But times have changed and farm policy must reflect the new realities.

Today, commodity prices are strong for most program crops, and we’re seeing record and near-record production and yields. The debt-to-asset ratio has now fallen to about 11 percent, the lowest number USDA has ever recorded.

Exports, meanwhile, have increased every year since 2002 and last year hit a record $68 billion. They are expected to grow to $77 billion this year.

USDA put a great deal of time and energy into developing a comprehensive set of proposals for the 2007 Farm Bill that will help move the farm economy to a new level of prosperity and growth.

Secretary Johanns began this process by holding 52 forums across the country to gather input directly from those most affected by farm policy – America’s farmers and ranchers.

In all, USDA received more than 4,000 comments from producers across the country. The collective common sense drawn from those comments has really formed the heart of the farm bill proposals.

The department certainly heard a great deal of support for the structure of the 2002 farm bill, but also heard many suggestions on how to improve current policies and many of them were surprising. Secretary Johanns and the USDA team took all of what was heard into account as these proposals were crafted. And they sought to combine the best features of our farm policies of past years—including preserving a strong safety net for producers—with a more market-oriented approach to meeting the challenges and seizing the opportunities that we know future years will bring.

One of those opportunities is the growing demand for renewable energy. The President is setting bold goals for the nation and they are going to mean big changes for American agriculture. In his State of the Union message, he raised the bar for all of us by committing the nation to cutting its total gasoline usage by 20 percent over the next ten years. To get us there, he proposed another step—boosting our mandatory production of renewable and alternative fuels to 35 billion gallons a year over the next ten years.

To help reach that goal, USDA’s farm bill proposals include $1.6 billion in new funding for renewable energy research, development, and production. The bulk of that money will go for research on better and more efficient ways to make cellulosic ethanol.

On top of that, the proposal calls for a $2.1 billion loan program to support cellulosic ethanol projects located in rural areas.

Also proposed is increased support for specialty crops, which are now equal in value to program crops. This would be accomplished by buying more fruits and vegetables for food assistance programs and addressing barriers to trade like sanitary and phytosanitary issues.

Changes to the farm safety net are proposed so that producers are certain it is there when it is needed most.

During the Farm Bill Forums, USDA heard from many farmers and ranchers that this has not always been the case under our current policies.

So one change is to convert the current price-based countercyclical program to a revenue-based program. Under a price-based program, farmers who have a crop loss are often under-compensated, while those with high production are over-compensated.

Another proposal is to tighten the payment limits and close payment loopholes under commodity payment programs. Doing so would be accomplished by eliminating the three-entity rule and setting a payment limit for individuals at a total of $360 thousand.

And to lessen reliance on disaster aid, we want to allow farmers to purchase supplemental insurance that would cover the gaps in traditional crop insurance. Of course, I'll talk about that a little more later.

Farmers and ranchers know the value of being good stewards of their land, and USDA tries to assist them through conservation programs designed to preserve our land resources or restore them where necessary.

In putting the Farm Bill together, USDA took a hard look at the way these programs were run in the past and found plenty of room for improvement. We heard complaints about overlap, complexities and inefficiencies.

The conservation title of the Administration’s Farm Bill proposal, aims to address those basic concerns by consolidating, simplifying and streamlining our existing programs. It will remove obstacles to sharing new techniques and technologies.

A number of other steps have been proposed as well:

First, making it easier for beginning farmers and ranchers as well as socially disadvantaged producers to access conservation programs.

This will make the merit of individual projects, rather than regional funding formulas, the key criteria in allocating resources.

Second, setting new rules and standards to make markets for valuing and trading environmental credits more viable.

The aim here is to see the best stewards of the land rewarded and the power of market forces harnessed to improve the overall quality of our environment.

At the same time, it is important to address the market distortion in prices for farm land that has been caused by owners seeking to do Section 1031 exchanges.

Secretary Johanns heard repeatedly in the Farm Bill forums that these tax-driven transactions have been pushing land prices and cash rents up for everyone in our rural areas—and making it even harder for young farmers to get started.

So this Farm Bill proposal will bar land that is bought in a 1031 exchange from being eligible for commodity support payments. This will let the market drive land purchases and prices instead of the tax code.

Finally, this is all backed up with a very strong financial commitment to conservation in this Farm Bill.

An additional $7.8 billion dollars in spending on new conservation projects is proposed.

That breaks down to:

• An additional $4.2 billion for a revised Environmental Quality Incentives Program,
• $2.1 billion more for the Wetlands Reserve Program,
• An additional $900 million for private lands protection
• And $500 million more to improve and expand the Conservation Security Program nationwide.

Support of agriculture is both a wise investment and good policy. These proposals allow USDA to provide that support in a manner that is both reform-minded and fiscally responsible.

In total, these proposals will spend approximately $10 billion less than the cost of the 2002 farm bill over the past five years while upholding the President’s plan to eliminate the deficit in five years.

These Farm Bill proposals will put American agriculture on a strong competitive footing for years to come while also making responsible use of taxpayer dollars.

With that, let me go into just a bit more detail on the crop insurance-related proposals.

The Farm Bill proposal includes a number of programs to ensure producers are adequately protected in the event of crop losses and that the crop insurance program remains on solid financial footing.

We're proposing to increase the efficiency and effectiveness of our crop insurance program with a number of proposals, some of which you've seen in budget submissions.

First, we would improve our risk management tools for farmers by creating a supplemental insurance program.

As an example, you can buy crop insurance for 70 percent of your loss. For some well-established farmers, that's sufficient coverage. They can withstand the 30 percent loss. They don't like it, and it's not a good situation, but it's not going to put them under.

We are proposing literal "gap coverage" that you can buy to cover 100 percent of your loss under the crop insurance program.

This would cover all or part of their individual policy deductible in the event of a county or area wide loss.

This supplemental coverage would pay some or all of a grower’s individual deductible if the producer is in a county that has suffered a high rate of loss.

This supplemental deductible coverage would function similarly to existing policies such as the Group Risk Plan (GRP) and the Group Risk Income Protection (GRIP). The supplemental policy would be offered at several coverage levels such that all or only a portion of the deductible would be covered.

For example, if a producer selects 65 percent coverage under an individual policy and purchases supplemental deductible coverage, the producer could be compensated for up to, but not more than, 100 percent of his or her loss in the event of a devastating drought.

The threshold at which the supplemental insurance would be activated is a county-wide loss of 10 percent or more. When the loss under the group policy is sufficiently large, the grower’s deductible would be completely covered, resulting in 100 percent of losses being covered.

Ultimately, this approach would help to address the gap in the safety net that exists due to the fact that current crop insurance products fail to cover crop losses that are less than the size of the deductible. MORE