April 27, 2015
Director, Product Administration and Standards Division
Risk Management Agency
United States Department of Agriculture
PO Box 419205
Kansas City, MO64133-6205
The National Cotton Council (NCC) is pleased to submit comments on Docket Number FCIC-13-0006, which makes changes to Section 508(h) of the Federal Crop Insurance Act. This provision is extremely important to cotton growers.
The NCC is the central organization of the U.S. cotton industry representing growers, ginners, warehousemen, cottonseed merchandisers and processors, merchants, marketing cooperatives and textile manufacturers whose primary business operations are located in 17 cotton producing states stretching from Virginia to California. U.S. cotton growers produce a crop with an annual farm-gate value in excess of $5 billion. The industry and its suppliers, together with the cotton product/manufacturers, account for approximately 200,000 jobs and generate total annual economic activity in excess of $100 billion.
Federally administered crop insurance is the cornerstone of cotton farmers risk management. The Agriculture Act of 2014 included major changes to cotton policy that resulted in significantly less support under the commodity title and a greater reliance on crop insurance for cotton farmers. We applaud the Risk Management Agency (RMA) for implementing the many enhancements included in the law in a timely manner – including the Stacked Income Protection Plan (STAX) and Yield Exclusion provision. The 508(h) process has been used within the cotton industry and resulted in the very popular Cottonseed Endorsement. Generally, we are supportive of the clarifying aspects of the proposed rule, but do have some concerns about several of the modifications that have been included in this Proposed Rule and below are some specific observations.
Section 400. 701 Definitions
We would note that several of the new definitions that are included in the Proposed Rule contain many subjective terms and do not provide a clear standard by which a submitter can know that they have met the required threshold by the Federal Crop Insurance Corporation (FCIC) Board. Additionally, many entries in this section go far beyond a definition and contain provisions that would be better placed in other appropriate sections of the rule. Specifically, more clarity is needed for the terms "Sufficient Quality" and "Viable and Marketable." We would propose that FCIC revisit the terminology and publish in the final rule definitions that provide clear and measurable standards that can be met by a submitter.
We are supportive of the provision in this section that allows an applicant to submit a concept proposal to the Board prior to developing a full submission. We believe this will expedite and streamline the process by enabling the applicant to develop a better initial product with feedback from the FCIC Board.
Section 400.705 Contents for new and changed submissions, concept proposals, and indexed-based weather plans of insurance
We believe that the revisions made in this section are problematic due to the fact that the ability of a concept proposal or complete submission to move forward will be reliant on standards that are not easily measured. It will be very difficult for a submitter to know whether a proposal meets RMA and the FCIC Board's sole view that the proposal or submission is both complete and of "sufficient quality." The determination leaves a submitter with no opportunity for appeal of the decision if rejected. Also, new requirements disallowing appended items or requiring a single software to be used may also result in important information being excluded from submissions. We recommend FCIC incorporate language that provides submitters clear and measurable standards and a fair appeal process when the Board deems a submission fails to meet those standards.
It is important to note that while the law allows the FCIC board to prioritize submissions of new products and modifications of existing products as described in Section 400.706 (g), we believe that the exercise of this authority must be performed in an open and transparent manner. Doing so is vital to the ongoing success of the 508(h) process and is necessary to avoid the perception that the 508(h) process is not being implemented in a manner as intended by Congress.Further, it is our belief that any products related to cotton should be included under the second priority of "existing policies or plans of insurance for which there is inadequate coverage or there exists low levels of participation."While there are products available to cotton producers including STAX as well as yield and revenue policies; these products are the sole risk management tool for cotton producers. In 2014, 30% of cotton acres bought coverage at the 60% buy-up level or below – 17% of acres either had no coverage or coverage at the lowest levels available. Any enhancements to these products or the addition of new products or endorsements would be a benefit for cotton growers.
We are also concerned about the lack of a suitable appeal or review process for submitters who put together packages in good faith, but are then subject to a closed review process dependent on the FCIC Board and RMA being given the ability to determine "at its sole discretion" whether or not a proposal is complete or meets the subjective requirements outlined in this Proposed Rule. We believe that there is significant potential for this level of authority to be improperly implemented and we request both the RMA and FCIC Board to provide clear, measurable standards in regards to the requirements that submitters must meet, as well as to ensure that the decisions they make are based on the same sound and transparent standards.
Section 400.712 Research and development reimbursement, maintenance reimbursement, advance payments for concept proposals, and user fees.
We are supportive of an advance payment of up to 50 percent of the projected total research and develop costs and the new provision which would allow the FCIC Board to provide up to an additional 25 percent advance payment. The research and development costs of a major plan of insurance can be substantial, with many organizations unable to cover these up-front costs. The additional 25 percent advance payment could be instrumental in these situations, and we encourage FCIC to proactively use this authority to advance the ability of the RMA to provide growers with sound risk management options.
We are concerned, however, that there are also provisions in Section 400.712(e) that have the potential to significantly reduce the ability of a submitter to be reimbursed for the full research and development costs of a complete and acceptable submission. Many of the proposed adjustments included in this section are hard to understand and do not seem to adequately recognize many of the factors that determine the true complexity of a submission. Improperly applied, the adjustments allowed for in this section could have adverse financial consequences on grower organizations or others attempting to initiate or improve risk management alternatives for producers. Clearly, this section could unfairly reduce the amount of research and development reimbursements based on the geographic area covered or whether or not the submission covers single or multiple crops, regardless of actual development costs. While we understand the need to ensure that only relevant and defensible costs are reimbursed, the process must not be viewed as one that can be implemented to artificially reduce the amount of reimbursement based on arbitrary measures. As written, we are concerned about Section 400.712(e) and recommend that it should not be included in the final rule.
Cotton producers are heavily reliant on the federal crop insurance program and the NCC believes it is imperative that every aspect of the program be open, transparent and easily understood. As the primary mechanism for commodity groups and private submitters to advance new risk management the 508(h) process must also reflect these standards so that it can provide growers and their representatives a viable product development mechanism.
Thank you for the consideration of our views.
Gary M. Adams
President and CEO
National Cotton Council