WASHINGTON (DTN) -- Since the 1980s, farm safety nets have largely focused on protecting farmers from low prices, not necessarily low incomes. Now a revolutionary consensus among farm groups means that a crop insurance program is emerging as the core replacement for decades of cumbersome programs involving price supports, marketing loans, direct payments and target prices.

The shift is historic and sets the stage for helping growers adapt to highly volatile 21st century markets, said speakers at a Farm Foundation risk management briefing this week.

"In 1996 we began this debate on the future of farm programs," Ohio State University economist Carl Zulauf said. "Today the budget is pushing what was already occurring. The forces of farm policy are moving toward risk management."

Eight of the nine farm bill proposals pending in Congress build on crop insurance with a revenue program as the cornerstone of the federal farm safety net, Zulauf noted. They also link insurance to an amended Average Crop Revenue (ACRE) program for multiyear revenue drops, create coverage for shallow losses not covered by crop insurance and ditch a target-price program now out of touch with crop producers' real cost of production.

"There's a broad sense of agreement if you stop there," Zulauf said, adding that these are major changes that didn't receive universal support even four years ago during the last farm bill debate.

Crop insurance alone doesn't cover all the gaps that can occur in farm revenue, Zulauf stressed. It covers only the revenue risk growers face between planting and harvest -- not the risk from multi-year price plunges that periodically plague agriculture, such as the collapse of the former Soviet Union in the 1980s or the Asian financial crisis of the 1990s, both of which shocked farm exports and prices.

"You can't [cover multi-year shocks] with a program guarantee that resets to market prices every year," Zulauf added. That's why most plans also include some kind of supplemental payment that is triggered when farm revenues plunge far below a historical average.

Crop insurance's evolution from a yield-only program to revenue protection since 1996 has largely eliminated the fears that one bad year will put growers out of business. Thirty years ago a grower who suffered a catastrophe on individual yields was on his own, said Ann Jorgensen, an east-central Iowan whose corn fields and grain bins were flattened by straight-line winds this summer. "The best you could hope for was a statewide disaster so Congress might authorize special disaster payments."

In the 15 years since revenue insurance was launched, improvements have attracted three times more insured acres at the national level, Jorgensen said.

In semi-arid parts of North Dakota, bankers need to see crop insurance's income guarantees at planting to justify lending, added Clair Hauge, a fourth-generation farmer and rancher from Carson, N.D. A former banker, Hauge says ag lending would tighten considerably without a viable crop insurance option and bankers would need to raise interest rates to justify carrying higher-risk loans.

Even cotton -- the industry most reluctant to drop direct payments and marketing loan supports -- sees its August 2011 farm program proposal as a major policy reversal. To make U.S. programs conform to World Trade Organization rules, cotton has advocated a farm safety net based on crop insurance, but with a type of county-wide group revenue program that pays on top of standard crop insurance policies for the first 30% of a loss. In effect, this add-on policy would be very similar to a Group Risk Protection (GRIP) policy.

Coverage for those shallow losses is crucial for young, beginning or small operators, since they are most likely to lack the reserves to weather shocks to farm revenue, said Jimmy Dodson, a Texas dryland cotton producer who chairs the American Cotton Producers of the National Cotton Council.

Seasoned veterans like Dodson may have more equity to risk, but the dollars involved in commercial farming make risk management essential. "I want a program that allows me to bury $1 million into the ground hoping it will rain and I'll get some of my money back," he said.

Timely support is also critical, Dodson added. He harvested a "zero crop" in 2009 and has been told he'll receive a SURE disaster payment from USDA. "But I haven't even applied for a payment yet because I'm still on the waiting list for an appointment," he said. "It will be 2012 before I see any benefits from that program."

Crop insurance helped many dryland Texas producers hold their own this year despite a scorching from the state's worst drought in history, added Dodson, who also serves as vice chairman of the Farm Credit Banks of Texas. When Texans saw the drought developing, operators were able to buy higher levels of coverage and dryland growers could slash expenses. Irrigated operators were a different story because they shelled out pumping costs but only received half a crop, Dodson said.

In Texas, the assessment is "crop insurance doesn't turn red ink black, it turns it a shade of purple." Dodson said.

Marcia Zarley Taylor can be reached at Marcia.taylor@telventdtn.com

(CZ/AG)

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