Why Farm Revenue Protection Matters
If you think the unfolding debate in Washington about subsidies for Revenue Protection (RP) doesn't matter, think again. The 2012 drought and its impact on farm income and farmer attitude should be proof positive of their value. To imagine the alternative, recall the cropping disasters of 1988 and 1993 and think Hurricane Sandy.
This weather event has drained available aid and raised calls for $40 billion to $60 billion or more in disaster aid.
©ISTOCKPHOTO.COM/GHORNEPHOTO By contrast, the worst drought in decades has crop producers and those ag professionals who rely on income from farmers relatively unruffled, thanks to a program that works, suggested Art Barnaby, Extension specialist, risk management, Kansas State University.
"More than 80 percent of growers in the affected areas were insured, and the vast majority had some level of revenue protection," reported Barnaby. "People had coverage that simply wasn't there in 1988 or 1993. Because they had revenue protection, their payment wasn't eliminated when the price went up."
Under traditional Multi-Peril Crop Insurance, yield losses alone were covered with elections from 50 to 85 percent of yield. With CRC/RP, which automatically includes the Harvest Price option, growers were not only protected against production losses, but also received much of the gain they would have made with higher prices at harvest had their crops produced as expected. This is vital to producers who market through livestock. Without revenue protection, they would have had to buy back higher priced corn and other feed grains to replace what they couldn't grow. However, livestock producers weren't the only ones to benefit. Barnaby pointed out that having revenue protection raises the comfort level for pricing the crop ahead of harvest. Not insignificantly for full-service ag retailers, that raises the comfort level when investing in high cost inputs for servicing farmers.
"Every single marketing plan out there assumes production and has a physical bushel at the end of the day," said Barnaby. "Revenue Protection with the Harvest Option gives you that less the yield deductible."
PROGRAM UNDER FIRE
Ironically, a program that appears to be working as planned is under fire. Critics have suggested the program could put the federal government on the hook for $30 billion to $40 billion in payouts to farmers. Other news stories have suggested a large bailout of insuring companies will be required. Barnaby argued that neither claim has a basis in fact. He pointed out that payouts to farmers aren't losses to the companies until they exceed the premium. Even then, insurance companies are prepared to handle losses to the point required by the program.