Minding Ag's Business

Debate Rages Over APH Forgiveness

Great Plains wheat growers were howling over USDA's decision to postpone a big promise in the 2014 farm bill, as DTN's Chris Clayton and Jerry Hagstrom reported last week (see "Vilsack Resists APH Update" http://online.dtn.com/…).

Growers victimized by years of severe Great Plains drought had fought for a provision to update their crop insurance Actual Production History, or APH, to exclude years in which county yields fell more than 50% below the 10-year average. Under such dire countywide conditions, growers were supposed to be able to delete their own low performance year from their APH history and divide their averages by nine. This was a way for grain producers with near zero yields to retain some semblance of insurance coverage, but prevent fraud since the county would need to suffer a disaster before an individual could erase low yields. Growers in adjacent counties would also be eligible for yield forgiveness.

That county trigger assures there's not an individual management issue or a some moral hazard trying to game the system, points out Kansas State University economist Art Barnaby. At the same time, he thinks it's fair to forgive yields when there's a widespread weather disaster. "If you've made crop insurance the national safety net, you can't drive it so low that as [Iowa State University's] Bob Wisner used to say, it's 2 inches off the floor," Barnaby argues.

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Failure to implement the rule in 2015 will affect both crop insurance coverage and the new Supplemental Coverage Option (SCO) available to producers who elect Price Loss Coverage, he adds. SCO is triggered by county yield but payments are then based on the individual's APH.

USDA counters it didn't have enough resources to implement the crop insurance rule for 2015, and calls the county and individual calculations "complex" and IT intense. Barnaby suspects crop insurance companies objected that insurance rates would need to be adjusted to take the relaxed APH formula into account, something he thinks could have been accommodated administratively.

What's more, it's not just Texas, Oklahoma, Kansas and Nebraska that have suffered significant yield osses, he argues. More than 40 Illinois counties would have triggered the provision after 2012's drought, he says. Excess heat and drought at pollination meant near-zero corn yields in some southern Illinois counties.

Compare that to Finney County, Kan., a bellwether of the Great Plains. The county's nonirrigated wheat has experienced below average yields the last four years, but none slipped below a 50% loss. In fact, the last time yields fell that low was 1996, Barnaby says.

Steve Griffin, a West Des Moines, Iowa crop insurance expert with CVision Corp. and a frequent expert witness in legal suits, believes the calculations in APH forgiveness should be relatively simple. "If RMA sits on its hands, there could still be a lawsuit to force crop insurance companies to comply with the Federal Crop Insurance Act, as amended by the Farm Bill," he says.

So I welcome your opinion: Is there good reason to postpone the APH provision for another year? What difference does that make to your farm safety net?

Note: This entry was corrected to reflect that Bob Wisner is from Iowa State University, not the University of Illinois. My apologies.

Follow me on Twitter@MarciaZTaylor

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