crop insurance in relation to other components of the producer safety net joe l. outlaw professor...
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![Page 1: Crop Insurance in Relation to Other Components of the Producer Safety Net Joe L. Outlaw Professor & Extension Economist Co-Director, AFPC July 26, 2011](https://reader037.vdocuments.mx/reader037/viewer/2022110405/56649edd5503460f94bee309/html5/thumbnails/1.jpg)
Crop Insurance in Relation to Crop Insurance in Relation to Other Components of the Other Components of the
Producer Safety NetProducer Safety Net
Joe L. OutlawProfessor & Extension Economist
Co-Director, AFPC
July 26, 2011
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Net Outlays ($B), 2012-Net Outlays ($B), 2012-2121
Source: CBO March 2011 Baseline
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Total Payments ($M), Total Payments ($M), 2012-212012-21
Source: CBO March 2011 Baseline
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What I Look For in a Safety What I Look For in a Safety Net?Net?
1. Does it help when it’s needed and doesn’t when it’s not?
2. Can you explain what your trying to accomplish to a normal person and they understand?
3. Does it help keep people actually farming the land?A. Support goes to those “at risk”B. Bankability - Will a lender consider it in making
operating loans?
4. Is there minimal overlap?A. Not getting paid on the same loss twice…
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Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria• Crop Insurance
– Yield insurance passes all my tests– Revenue insurance passes almost all tests
• If you have any other price/revenue support tool in place there will be overlap
• Futures market based price – good and less good (perceived or real market manipulation can create politically unacceptable or indefensible outcomes)
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• SURE– Passes all except for #1– it has paid so late
that if you really needed this part of the safety net to kick in – was probably too late (Money from the heavens) and
– 3b – not bankable– Difficult but can be explained as just whole
farm gap insurance– No Baseline
Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria
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• ACRE– Is counter-cyclical but better hope highly correlated with
state yields – otherwise might not trigger– Can’t explain it to anybody – much less a normal person– Does support people “at risk” but based off of
benchmark prices that for some crops are too low to provide much protection
– Has not been seen as bankable – too complicated with multiple triggers
– Tremendous overlap with crop insurance• Cannot defend paying on the same loss twice…
Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria
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• Direct Payments– Passes #2 (explainable) and 3a (bankable)– Fails on:
• not counter-cyclical support• Not only helping those at risk• Overlap???
– I probably should have had WTO acceptability as one of my criteria but… I didn’t
Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria
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• Counter-Cyclical Payments (CCPs)– Passes #1 sort of and #2 explainable– Fails 3a and 3b (“at risk” and bankable)– Does overlap with revenue insurance– If we go this route payment limits would
need to be raised – otherwise no bankable protection
Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria
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• Marketing Loan/LDPs– Almost perfect (passes all my tests)– If it had a built in automatic input cost
inflation and yield improvement mechanism – we wouldn’t be having this discussion, maybe a WTO discussion, but not this one
– Overlaps with revenue insurance
Evaluating Safety Net Evaluating Safety Net Options Relative to my Options Relative to my
CriteriaCriteria
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• Each of the various components of the producer safety net have their strengths and weaknesses– Each were designed to accomplish a certain goal– Whether I think the tool is any good probably is
influenced by what I think it’s goal was/is• In a limited budget environment – Choices will
have to be made• If it were me making the choice I would say all we
need is crop insurance and some time of price protection
SummarySummary