NCC Executive Outlines STAX Proposal Rationale

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February 13, 2012
Contact: T. Cotton Nelson or Marjory Walker
(901) 274-9030

MEMPHIS -- Addressing the joint meeting of the National Crop Insurance Services and American Association of Crop Insurers, National Cotton Council President/CEO Mark Lange laid out the circumstances that brought the U.S. cotton industry to endorse a sweeping change in cotton policy.

Speaking to their convention in Scottsdale, AZ, today, Lange said the Stacked Income Protection Plan, or STAX, allowed U.S. cotton to meet budget constraints, provide meaningful risk management and address the commodity's unique policy challenge -- the World Trade Organization (WTO) Brazil case.

"The policy developed by the National Cotton Council can be operated with a 30 percent reduction in the CBO baseline for upland cotton," Lange stated. "The STAX program is an extension of current area-wide revenue based crop insurance products and allows reasonably priced coverage for losses that are not currently available. The National Cotton Council has consulted with representatives of the crop insurance industry and USDA's Risk Management Agency in the development of the program."

He emphasized that crop insurance products are extremely flexible and give producers the opportunity to match the risk tools and coverage to their financial situation. As proposed, STAX complements existing products and gives producers the opportunity for obtaining shallow loss coverage tailored to their operation and willingness to pay. Producers would be able to buy revenue loss coverage ranging between 10-30 percent in five percent increments. This contrasts sharply with Farm Service Agency delivered products that essentially are one-size fits all without any ability to customize participation.

"Because STAX is an area-wide product and not based on individual performance, the producers can elect higher levels of coverage with a reduced chance of moral hazard," Lange noted."It also reinforces the importance of individual crop insurance coverage for deep losses. STAX, as designed, is not a disaster program."

Reflecting on criticisms of the several program options offered by cotton and other commodities, Lange said there seems to be "a tremendous amount of shooting from the hip with no real analysis behind the commentary. Farm and commodity organizations are accountable for their statements and should exercise sound judgment."

He added, "Claims about locking in high prices with STAX are nonsense. Unlike programs that rely on five- year averages, STAX looks only at the current year's futures market for price information. Raising red herrings with claims of WTO concerns is another common criticism.The use of averages in income and revenue programs does not by itself confer any particular status in a WTO context."

Lange told the group that the U.S. cotton industry has 1) demonstrated it has programs with annual average estimated costs between $400-450 million, and those costs will be fairly stable over time and 2) offered a proposal that eliminates the counter-cyclical payment that can run costs up to $1.2 billion in years of low prices.

He said that the NCC looks forward to working with the crop insurance industry to make STAX a reality.