Agricultural Disaster Assistance Approved for 2005-2007

Agricultural Disaster Assistance Approved for 2005-2007

June 22, 2007

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see more at the Cornhusker Economics Newsletter Web site. Written by specialists from the UNL Department of Agricultural Economics, this weekly newsletter covers policy and economic issues affecting Nebraska ag producers.

After a long and contentious political battle, Congress passed, and the President signed an agricultural disaster assistance package to provide support to crop and livestock producers for losses over the 2005-2007 period.

The potential impact of the assistance package for Nebraska producers is significant. Based on work done in collaboration with colleagues at Kansas State University, the economic impact of the crop portion of the assistance could be over $30 million to Nebraska producers. The livestock portion of the package could add approximately $43 million, bringing the total to more than $73 million in assistance. In addition, some other provisions of the package may add additional support to Nebraska agriculture this year and in the coming years.

Crop Disaster Program

A major part of the assistance package is a Crop Disaster Program similar in design to assistance in previous years. The program will compensate producers for quantity and quality crop losses below a threshold level of 65% of the producer's established yield, at a rate of 42% of the established price. Producers can receive benefits for crop losses in one of the years of 2005, 2006, or 2007. In the case of 2007 crop losses, the benefits are limited to crops that are planted or would have been planted prior to February 28, meaning wheat losses in 2007 could be covered.

There are a few important restrictions on this assistance. Only producers who purchased crop insurance on the crop, or in the case of non-insurable crops, signed up for the noninsured assistance program, are eligible for assistance. In addition, any disaster payments may be limited to the extent that the sum of actual crop value, net insurance indemnity payments, if any, and crop disaster payments exceeds 95% of the value of the crop had there been no loss. To be eligible for assistance, the producer must meet the same $2.5 million adjusted gross income cap as used for commodity programs in the 2002 Farm Bill. And, there likely will be an $80,000 payment limit per individual on crop disaster payments.

The estimated benefits of about $30 million are based on comparing crop insurance indemnities in 2005 and 2006. While individual producers may have seen and claim bigger losses in either 2005, 2006 or 2007 (in the case of wheat), it is clear from the insurance claims that 2006 was the year of biggest losses in most Nebraska crops.

Livestock Assistance

The assistance package also includes a Livestock Compensation Program to provide producers a fixed payment per head for livestock in disaster counties. Here too, the assistance can be claimed for losses in either 2005, 2006 or 2007 prior to February 28. Given that all counties in Nebraska were declared primary or contiguous disaster counties at some point in the three-year period, producers in all counties will be eligible for this assistance, subject to other guidelines.

If the implementation of the program follows the model of the 2006 Livestock Compensation Program put in place for losses in hurricane-damaged counties, the compensation will be based on eligible inventories of livestock, including beef cattle, dairy cattle, sheep, goats, swine, poultry and certain species, and a payment rate equal to 61% of the previous rate. The $2.5 million adjusted gross income cap and an $80,000 payment limit also will apply to benefits under this program.

An additional bit of livestock assistance comes from the Livestock Indemnity Program, which will reimburse producers for livestock mortality losses in disaster counties at a rate equal to 26% of the market value of the lost animals. As with the other programs, producers can only claim losses for either 2005, 2006 or 2007 prior to February 28. And, the same $2.5 million adjusted gross income cap and $80,000 payment limit apply.

Estimating total benefits under these programs is difficult because of uncertainty in the percentage of total livestock inventories eligible for assistance, and because of the unknown number of documented livestock losses from various recent storms. Based on some analysis of beef, dairy, sheep, goat and swine inventories, the estimated impact of the Livestock Compensation Program is around $43 million. While total livestock mortality losses from the severe storms are unknown, the loss of several thousand head could lead to payments of as much as a few million dollars to Nebraska producers.

Other Provisions

The assistance package also includes some additional funding for smaller programs, but more significantly, includes some language that affects two significant farm bill programs. The legislation extends the Milk Income Loss Contract (MILC) program for one month, from the end of August to the end of September, meaning the program will continue through the end of the current farm program. As such, the MILC program should be included in the baseline budget for the new farm bill and thus, should not require several billion in cuts elsewhere to be continued. The legislation also removes a spending restriction on the Conservation Security Program (CSP) for fiscal year 2007. This may allow sign-up to proceed yet in the current year and could alleviate some concerns over CSP payments on existing contracts that were due to increase in 2007, but were limited by the spending constraint.

Summary

In summary, the assistance package will provide tens of millions of dollars of support to Nebraska producers for crop and livestock losses in 2005-2007. Perhaps more significantly, it will impact the current debate on the new farm bill. Disaster programs and crop insurance programs have both been a significant part of the farm safety net for many years, yet they generally conflict with each other. Continual disaster programs reduce the incentive for producers to invest in crop insurance. While the current crop disaster program addresses that disincentive with a restriction on assistance only to insured acres, the mere development of a disaster program continues the policy conflict between support tied to federally subsidized insurance programs and support tied to ad hoc congressional measures. This will certainly be part of the debate as the development of the new farm bill continues in Congress.

Bradley Lubben
Extension Public Policy Specialist

(Reprinted with the author's permission from the June 6, 2007 Cornhusker Economics.)

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