Crop Insurance is Extremely Important Risk Management Tool

WASHINGTON, DC – Texas cotton producer Jimmy Dodson told a Farm Foundation forum audience today that risk management tools, particularly crop insurance, "are extremely important to cotton producers." Dodson, chairman of the National Cotton Council's American Cotton Producers, was a participant in a panel discussion on "The Future Role of the Federal Government in Agricultural Risk Management" held at the National Press Club.

Dodson said that in many parts of the Cotton Belt, "purchasing adequate crop insurance is often a requirement for securing financing for production costs. In today's environment, we do not see that requirement changing. As such, it is our hope that crop insurance products can be enhanced to further protect producers from events beyond their control."

He said that in 2010, about 95 percent of upland cotton acres were covered under some type of crop insurance and more than 85 percent of insured acres were covered under "buy-up" insurance. Revenue products also have gained in popularity and are now covering more acres than traditional yield policies. The most common insurance choices among cotton producers are revenue products with coverage levels between 60 and 70 percent.

Dodson said that while USDA's Risk Management Agency (RMA) has made some recent beneficial changes to crop insurance products, the U.S. cotton industry believes there are areas for improvement.

• RMA should continue to look for ways to move towards rate-setting procedures that recognize those investments a grower makes that reduce their individual risk such as improved irrigation practices and adoption of seed varieties that incorporate crop protection traits.
• Regarding RMA's proposed rule for Area Risk Protection Insurance, Dodson said cotton producers also are very supportive of the Federal Crop Insurance Corporation's (FCIC) efforts to expand the offering of area-wide insurance products covering revenue and yield losses. These will provide an important risk management tool. Producers also agreed with FCIC's decision to incorporate their own yield data, as well as other USDA sources – a move that should enhance the yield estimates' accuracy/reliability and ultimately program performance.

He expressed appreciation for RMA's efforts to improve the cotton quality loss adjustment provision, based on the Commodity Credit Corporation's Loan Premium and Discount schedule and said the industry is continuing to look at further enhancements in quality adjustments.

He urged the reauthorization in the new farm law of a pilot program aimed at encouraging producers to insure enterprise units – insuring all of their acres in a county under one policy. Many have been able to purchase higher coverage levels with lower premiums.

Dodson also talked about the cotton industry's new risk management program recommendation that would allow a producer to purchase a crop insurance product from their insurance agent that would sit on top of their current insurance – to address shallow revenue losses. He said there are few options for producers who suffer from shallow losses, those up to 30 percent.

"As a producer, I understand the narrow margins we all are facing and 5 or 10 percent can make a huge difference to your operation's viability," Dodson stated. "While this program would be an asset to cotton producers in all areas of the country, it would be especially important to young farmers as they work with their lenders."

He added that this program would best utilize budget resources; respond to public criticism by directing benefits to growers who suffer losses resulting from factors beyond their control, and build on existing crop insurance programs, thus ensuring there is no duplication and offering the potential for program simplification.