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Crop Insurance in Relation to Other Components of the Producer Safety Net

Crop Insurance in Relation to Other Components of the Producer Safety Net. Joe L. Outlaw Professor & Extension Economist Co-Director, AFPC July 26, 2011. Net Outlays ($B), 2012-21. Source: CBO March 2011 Baseline. Total Payments ($M), 2012-21. Source: CBO March 2011 Baseline.

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Crop Insurance in Relation to Other Components of the Producer Safety Net

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  1. Crop Insurance in Relation to Other Components of the Producer Safety Net Joe L. Outlaw Professor & Extension Economist Co-Director, AFPC July 26, 2011

  2. Net Outlays ($B), 2012-21 Source: CBO March 2011 Baseline

  3. Total Payments ($M), 2012-21 Source: CBO March 2011 Baseline

  4. What I Look For in a Safety Net? • Does it help when it’s needed and doesn’t when it’s not? • Can you explain what your trying to accomplish to a normal person and they understand? • Does it help keep people actually farming the land? • Support goes to those “at risk” • Bankability - Will a lender consider it in making operating loans? • Is there minimal overlap? • Not getting paid on the same loss twice…

  5. Evaluating Safety Net Options Relative to my Criteria • Crop Insurance • Yield insurance passes all my tests • Revenue insurance passes almost all tests • If you have any other price/revenue support tool in place there will be overlap • Futures market based price – good and less good (perceived or real market manipulation can create politically unacceptable or indefensible outcomes)

  6. Evaluating Safety Net Options Relative to my Criteria • SURE • Passes all except for #1– it has paid so late that if you really needed this part of the safety net to kick in – was probably too late (Money from the heavens) and • 3b – not bankable • Difficult but can be explained as just whole farm gap insurance • No Baseline

  7. Evaluating Safety Net Options Relative to my Criteria • ACRE • Is counter-cyclical but better hope highly correlated with state yields – otherwise might not trigger • Can’t explain it to anybody – much less a normal person • Does support people “at risk” but based off of benchmark prices that for some crops are too low to provide much protection • Has not been seen as bankable – too complicated with multiple triggers • Tremendous overlap with crop insurance • Cannot defend paying on the same loss twice…

  8. Evaluating Safety Net Options Relative to my Criteria • Direct Payments • Passes #2 (explainable) and 3a (bankable) • Fails on: • not counter-cyclical support • Not only helping those at risk • Overlap??? • I probably should have had WTO acceptability as one of my criteria but… I didn’t

  9. Evaluating Safety Net Options Relative to my Criteria • Counter-Cyclical Payments (CCPs) • Passes #1 sort of and #2 explainable • Fails 3a and 3b (“at risk” and bankable) • Does overlap with revenue insurance • If we go this route payment limits would need to be raised – otherwise no bankable protection

  10. Evaluating Safety Net Options Relative to my Criteria • Marketing Loan/LDPs • Almost perfect (passes all my tests) • If it had a built in automatic input cost inflation and yield improvement mechanism – we wouldn’t be having this discussion, maybe a WTO discussion, but not this one • Overlaps with revenue insurance

  11. Summary • Each of the various components of the producer safety net have their strengths and weaknesses • Each were designed to accomplish a certain goal • Whether I think the tool is any good probably is influenced by what I think it’s goal was/is • In a limited budget environment – Choices will have to be made • If it were me making the choice I would say all we need is crop insurance and some time of price protection

  12. Thanks!!! Joe Outlaw joutlaw@tamu.edu 979-845-5913 www.afpc.tamu.edu

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