Guinness Record Set? Reversals in Congress

I doubt the Guinness people keep track of how quickly politicians reverse course.  If they did they'd have to distinguish between individual politicians, who can reverse on a dime, if a dime lasts 12 hours or one news cycle, and governing bodies, like Congress, who naturally take a big longer.

I suspect Congress just set a new record: on Monday the big budget deal included a cut on crop insurance administrative costs; by the time the deal had passed early this morning (in the Senate), the cut was dead as a doornail.

Shows the clout of the insurance agents, and the usual hypocrisy of those who rail against government subsidies.

Farmers Take Two Hits

Two hits on farmers in the media:

1. the World Health Organization declares processed red meat to increase the risk of cancer (not IMHO a really serious risk, but the media will play it up).
2. the big budget deal between Boehner, McConnell, and Obama includes a hit on crop insurance companies, requiring renegotiation of the reinsurance agreement between RMA and the crop insurance companies.

FSA Gets Publicity for Midas

Farm Futures has a post on FSA implementation of MIDAS, based on some interview/speech by Dolcini.

I see they're doing a pilot project in a few IL/IA counties to handle acreage reporting for both FSA and crop insurance.  I wish them the best, though if you search on "acreage reporting" in this blog you'll see it's been a long slog.  I wonder if FSA got the $10 million Congress promised for progress by last Sept. 30.

How Many Insurance Companies Do We Need

From Farm Policy a quote from Vilsack testifying before Congress:

"“And I’m pleased with the fact that we’ve had a net increase in the number of companies writing crop insurance in the last 12 to 24 months. We’ve lost a couple, but we’ve gained four, so that the net is two, so I think it’s an indication that this is still an industry that can continue to expand [appropriately] and financially. We expect and anticipate roughly $8 billion plus to be invested by taxpayers in this system over the course of the next several years. And the payouts in the last time since I’ve been Secretary equal $55 billion, so it’s obviously an important program.”

 The administration thinks crop insurance costs can be cut; the crop insurance industry says not. What's the right answer?    Seems to me simple economics, the only kind I halfway understand, says that if an industry is profitable, and costs of entry are reasonable, you'll have more firms entering.  Conversely, if the industry is under stress, the weaker firms will fail or withdraw from the market.  So since the number of companies is increasing, that says to me the administration's position is more nearly right.  Maybe we ought to have a target for the number of companies: maybe five or six (in the good old days we had about six car companies and six computer (mainframe) companies, so six sounds like a good round figure. 

How about it?  :-)

Improper Payments, FSA, and OIG

From today's Farm Policy, reporting an exchange in a hearing with House Appropriations and OIG:

"[OIG] In some of the other programs, say the RMA and NRCS programs, the improper payment rate is much higher, in the teens, maybe near 20%. There are probably a number of reasons for that. We are paying very close attention to that. And let me just offer the chance to comment to Gil and Ann.
Gil Harden, Assistant Inspector General for Audits: The thing that I would add to that, too, I mean, we are mindful of it, but the FSA percentages for their high risk programs for FSA are lower, some of the lower percentages. But we do keep them on the radar screen.
Ann Coffey, Acting Assistant Inspector General, Investigations: And I’d like to just address the question you had raised about what sorts of resources we’re allocating towards FSA investigative work. Historically, we have focused quite a bit of our resources on the SNAP program, but FSA is an area that we are definitely looking for an increase and expecting to increase our investigative work in those areas. We have had some very good cases within the last recent year with high dollar amounts, and so we do anticipate that within FY16 we will be increasing our work in FSA.

WTO-Doha Restrictions on Agricultural Payments

In the late 90's, IIRCC, we were just starting to deal with our commitments under the WTO, commitments which restricted nations' ability to provide support to their farmers. There were different color categories, depending on whether the payments had the effect of distorting trade.  One reason for changing from deficiency payments tied to planted acreage to direct payments based on past history (i.e, the Freedom to Farm formula in 1996) was to change the categorization.  The theory was that payments based on planted acreage increased production in a country, payments based on historical base acreage delinked payments and production.

Anyhow, years have passed.  Generally countries have reduced their supports and because negotiations for new WTO agreements failed, we haven't heard much about the subject in recent years.  Today though  Farm Policy quotes an article:

"...only the United States wouldn’t be able to meet the commitments assigned to it under draft 2008 Doha texts. However, that calculation is based on U.S. subsidies from 2012 and doesn’t factor in changes in U.S. agricultural policies in the new farm bill.
“Under the proposed commitments, the United States would have exceeded its trade-distorting subsidy limits by $3.6 billion in 2012. A diplomatic source said it’s unclear whether the farm bill will help or hurt in this area particularly because it’s not clear whether the U.S. will classify crop insurance as trade-distorting in its next subsidy notification.”

 My impression is that crop insurance used be considered as something which encouraged production; certainly EWG believes that, especially with regards to the Great Plains. 

Farm Program Costs Under the New FArm Bill

David Rogers at Politico has a longish piece on projections of costs under the new farm bill.  The Congressional Budget Office has revised their estimates upward.  Rogers suggests maybe their estimating process has problems, that as prices fall and  the new direct payment programs increase their payouts, crop insurance costs will also fall.

Is Crop Insurance Too Inefficient?

Someone called the Landstewardship Project (seems to be based in MN/WI) put out a study attacking crop insurance as highly subsidized and highly profitable.  According to today's Farm Policy, the crop insurance industry responded by saying the figures in the report end 5 years ago, before a set of administrative changes by USDA and legislative changes in the farm bill which cut subsidies and costs.

See the article at Agriculture.com

APH Again--What Is Normal

Previously posted on the problems implementing the APH provision of the farm bill.  The issue continues to get a lot of attention, as witness today's Farm Policy.  Two paragraphs from there:

Ms. Taylor pointed out that, “Huie [a Texas farmer introduced earlier in the piece] and other mega-drought victims from Texas to Colorado had banked on a new 2014 farm bill provision forgiving Actual Production History (APH) yields that collapsed due to extreme weather. The APH fix forgave an individual’s actual yields in counties where planted-acre yield tumbled at least 50% below a 10-year average. Growers in contiguous counties would also qualify.
“Because APHs are based on a 10-year history, the new rule would have erased Huie’s near-zero yields due to drought in 2006, 2009, 2012 and 2013. That would have lifted his 2015 cotton APH average 26% — with similar boosts for his dryland corn, grain sorghum and wheat. Establishing a realistic APH is doubly important now, since it is the basis for payments under the new Supplemental Coverage Option (SCO), an insurance rider that allows growers to buy up insurance coverage to 86% levels. Huie expects to need that option to supplement his base coverage.

I see this as illustrating one of the problems: the poor guy had zero yields in 4 out of the last 10 years, but he wants a "realistic" APH to get his coverage up.  What's the problem:  defining "normal".   For a farmer it's a good yield, not the sort of yields the Midwest corn and soybean people are getting this year, but a good, solid yield, one which rewards the hard work and the investment in land and equipment and fertilizer.  It's much like a Washington R*dskin fan, we'd like a good team, a team with a winning record, not necessarily a Super Bowl team, though that would be nice, but one whose season ends with some quiet satisfaction.  Certainly we don't want a team which only wins 3 games, we deserve better.

The reality Washington fans have to face is the team has not been good, much less very good, on a sustained basis for the last 2 decades. We don't have either the talent or the system.  It's possible that farmer Huie needs to face the fact that his land in Texas no longer has the weather needed to be a good farm.

If that's true, then Congress and RMA will be wasting money when they adjust the APH.

Implementing Laws--The Case of APH

Previously I noted that RMA is not able to implement a provision of the farm bill, allowing bad years to be excluded from the calculation of APH.  The UofIL has a post discussing the pros and cons and tradeoffs of the provision.  As is often the case, something which sounds simple isn't really when the poor bureaucrat has to translate the legislative language into regulations and computer algorithms.  Notably, if the producer excludes a yield, she has to pay a higher premium reflecting the increase risk. Pardon my cynicism, but I suspect that provision wasn't highlighted when Congress was considering the provision.

The good professors come up with 12 questions which should be answered.  (A sidenote: there is a recent book which argues that the "administrative state" is unconstitutional.  Haven't read it, but if I follow the argument, Congress should have written answers to those questions into the farm bill.  IMHO that's totally impractical--Congress barely has the capacity to write the basic provision and definitely doesn't have the capacity to answer most of these questions.)

They conclude with this:

The 2014 Farm Bill appears to make a substantial change to the crop insurance program through an amendment that permits farmers to elect to exclude yields from their APH if they are in a county (or contiguous to a county) where the county's average yield is below 50 percent of the average county yields for the previous 10 consecutive crop years. The provision raises many questions about how it will operate and what impact it will have on producers who elect to drop a yield. It also raises questions about the impact this change could have on producers in the county where such an election can occur and for the actuarial soundness of the crop insurance system as a whole. These are not insignificant questions considering how many producers rely on crop insurance as the cornerstone of the farm safety net. At the very least, FCIC must adjust the premiums paid by producers making this election to reflect the increased risks associated with the change, but many other questions remain.

What's Up--ACRSI

I've seen a recent jump in page views on the blog.  A popular page is the one I did in 2011 on the Federal Register request for comments on the Acreage Crop Reporting and Streamlining Initiative (being able to share data between RMA and FSA). I hadn't noticed much activity since, at least not enough to get me motivated to blog about it again, but my curiosity is aroused so I googled.

Two points--the 2014 farm bill requires ACRSI be implemented and this FarmForum article of a month ago.  I quote from Farmforum:

For example [of private enterprise coming up with advanced systems faster than FSA], MyAgData is already being used by Authorized Insurance Providers (AIPs) this crop year for acreage and production reporting in Iowa, Illinois, Indiana, Kentucky and Minnesota. But test programs in Illinois and Indiana at local Farm Service Agency offices this year didn’t quite work as efficiently as one might hope. The data was collected and matched to the common land units required for USDA acreage and production reports, but then was printed and had to be hand-entered at the local FSA office.

My heart bleeds (very easily--I'm a bleeding heart liberal) for those bureaucrats who've had to work on this effort--it's amazing how long it's taken to get action, though I see Congress has gotten USDA's attention by attaching money--FSA gets $10 million additional if they can show progress by Sept. 30.

Duplicative Payments and Management's Use of People and Money

GAO has a report on duplicative payments by USDA farm agencies. Basically, they found a lot of overlap (producers getting benefits from multiple programs) but not a whole lot of duplication (producers getting benefits from multiple programs for the identical cause, such as loss of production). They did recommend data matching in cases where duplication is possible, but RMA and FSA pushed back, arguing lack of resources. 

Bottom line: even though the taxpayer would gain if they identified the duplication (because the cost would be less than the money to be refunded, assuming there was 100 percent collection) it doesn't make sense to managers.  Assuming managers are good and rational, they see a bigger bang for the personnel and IR bucks in other areas.  The answer is to allow the agencies to keep  part of their collections, but that's not something likely to happen.

Yields on Lake Woebegon Farms

By definition, the farms around Lake Woebegon normally have above average weather.  And "around" extends to the 48 states, at least.  The question really is, whether "normal" should include below average years.  At one time we used "Olympic averaging" in ASCS--tossing the highest and lowest years and using the remaining ones.  But there's always pressure from the field and from Congress to recognize that we live in Lake Woebegon, and that applies to crop insurance as well as the old disaster programs of the 1970's.

From yesterday's Farm Policy:

A news release yesterday from Chairman Conaway stated that, “[Chairman Conaway] called on the Agriculture Department to implement the Actual Production History adjustment in 2015. The adjustment was part of the 2014 Farm Bill and allows farmers to prevent harvest years that are affected by severe weather from having a negative impact on the calculations determining their crop insurance coverage. ‘There are farmers and ranchers who have experienced severe drought for three years,’ Congressman Conaway said. ‘Many remain in severe drought this year. A good many of these areas are in D-4 drought condition. Despite all of this, we understand the department intends to administratively delay APH relief until 2016, the THIRD year of a FIVE year farm bill. I respectfully urge the department to respond to this natural disaster in states like Texas, Oklahoma, New Mexico, Colorado and other states around the country with the same speed and determination as one would expect in the case of a wildfire or a hurricane.’
“While Under Secretary Scuse did not commit to implement the provision earlier than the fall of 2015, he did commit to go back and investigate and provide the committee with detail about potential timelines, and even consider a partial implementation for areas and crops most impacted by drought and losses in the farm bill.”

Research Using Acreage Report Data

Here's a report from a Stanford team which used acreage report data.

Lobell's team examined an unprecedented amount of detailed field data from more than 1 million USDA crop insurance records between 1995 and 2012.
"The idea was pretty simple," he said. "We determined which conditions really matter for corn and soy yields, and then tracked how farmers were doing at different levels of these conditions over time. But to do that well, you really need a lot of data, and this dataset was a beauty."

The takeaway appears to be this: "But in the past two decades we saw very small yield gains in non-irrigated corn under the hottest conditions. This suggests farmers may be pushing the limits of what's possible under these conditions."

Wonder what other conclusions could be supported by "Big Data" in the form of FSA or RMA datasets?

Tidbits from John Phipps

John has a post on global warming, noting the expansion of Canada's growing season, meaning their acreage of corn is expanding. (He suggests looking at such evidence on the ground is more likely to be convincing than the IPCC studies, and I agree. A sidenote: apparently Canada and the US are on the same path of expanding the use of crop insurance.

Who Wins and Loses With Crop Insurance

Farmdocdaily (IL extension) has a post on the state-level distribution of direct payments versus crop insurance.  Most states (32 of them) are pretty close in their share but these states differ significantly:

Eleven states had a difference of 1.5 or more percentage points (a "+" sign means insurance share exceeded direct payment share):  Texas (+8.8%), North Dakota (+4.1%), South Dakota (+3.3%), Kansas (+1.9%), California (-1.8%), Louisiana (-1.9%), Iowa (-2.0%), Ohio (-2.1%), Minnesota (-2.9%), Nebraska (-3.0%), and Arkansas (-3.8%).

Bottomline: Great Plains states with higher risk and more variable production get more crop insurance, non Great Plains states less.  As the study observes, it raises the possibility that crop insurance will encourage the shift of production to more risky areas.  As a second thought, though, "shift" is perhaps the wrong term; "expansion" might be better.   Maybe we should view crop insurance as one measure by which agriculture is adjusting to global warming?

RMA Done Good?

From a post on "best practices", one of which was an RMA initiative:

To counter fraud, waste, and abuse, the Agriculture Risk Protection Act of 2000 mandated the use of a data warehouse and data mining technologies to improve crop insurance program compliance and integrity. RMA asked the Center for Agriculture Excellence (CAE) at Tarleton State University to create a system to monitor and analyze the program, identifying fraud using satellite, weather, and remotely sensed data to analyze claims filed by farmers for anomalous behavior that could indicate fraudulent or other improper payments. CAE is at the leading edge of application of remote sensing to agricultural insurance.
The RMA program has had several significant impacts, including:

• Identification of anomalous claims, plus monitoring as a preventive measure
• Linking claims histories with weather data
• Integration of the latest MODIS and Landsat satellite data into the data mining process
• Automated claims analysis

The results: cost avoidance of over $1.5 billion (2001–2007) scored by the Congressional Budget Office. Estimated reductions from prior year indemnities represent more than a $23 return for every dollar spent by RMA on data mining since its inception.
One initiative produced a list of producers who were subjected to increased compliance oversight; from 2001 to 2011, this reduced unneeded indemnity payments by approximately $838 million.

Conservation Compliance and Crop Insurance

From today's Farm Policy, discussing farm bill prospects:

"And on conservation compliance, the veteran lawmaker indicated that, “Well, the Senate says they have to have it. They’ve had votes on it where it’s passed by a significant margin. I think, at the end of the day, we’re going to have conservation compliance. But I have been working on this, that if we have to have it—because right now the House is not for this—but if we have to have it, the insurance companies will not be responsible for policing this, so they won’t have to decide whether somebody is in compliance or not.”

I'm not sure the veteran lawmaker (ranking member of House ag) understands conservation compliance, in that I don't know how one would ever require the insurance companies to police it.  Seems to me it would work essentially like the cotton/rice co-ops. 

AGI on Crop Insurance

Chris Clayton at DTN reports both Houses are generally in agreement on limiting crop insurance subsidies for high income insureds:

"On Friday evening, House Budget Chairman Paul Ryan, R-Wis., saw his resolution tightening income eligibility pass the House on a voice vote. The language was comparable to the Senate provisions. While a voice vote doesn't get everyone on record, the resolution does show GOP House leaders support the provision.

Conferees will have to begrudgingly keep the income cap or find some way to pivot around the issue."

Wonder how USDA would administer this?  Conceivably through FSA, I suppose, so USDA hits IRS only once.  But that assumes the rules for determining a person between crop insurance and USDA are the same, doesn't it?  (As time goes by I"m more and more aware that what I used to know is getting obsolete.)  Given how long it took for RMA and FSA to coordinate on acreage reporting dates, I wouldn't hold my breath for that result.  Might be simpler (remember KISS?) to leave the two operations completely separate and put up with complaints from farmers and Congress about the duplicate paperwork and discrepancies in rules. 

Can't Figure the Figures--Crop Insurance

Via Farm Policy, an article in Choices magazine on crop insurance, co-written by Keith Collins, formerly chief economist of USDA and now working for the crop insurance industry.

I have to assume the figures are accurate, but this figure from the article blows my mind:

It's deflated by crop prices somehow but seems to show some $60 billion in CCC payments in 2000.

[updated as follows]
Looking at the EWG database, there were about $23.5 billion in payments in 2000, excluding crop insurance, so it looks as if the deflator almost triples the payments in 2000.   While I can understand adjusting figures for inflation, i.e., using constant dollars, I don't the deflator.  I went to the CBO site, which I don't understand too well, and couldn't find the backup data for this, just their projections for the future.