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New Disaster Assistance Programs in the 2008 Farm Bill: Focus on SURE

New Disaster Assistance Programs in the 2008 Farm Bill: Focus on SURE. Rod M. Rejesus Assistant Professor and Extension Specialist Dept. of Ag. and Resource Economics NC State University. Introduction. In the past – temporary ad hoc disaster assistance payments

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New Disaster Assistance Programs in the 2008 Farm Bill: Focus on SURE

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  1. New Disaster Assistance Programs in the 2008 Farm Bill: Focus on SURE Rod M. Rejesus Assistant Professor and Extension Specialist Dept. of Ag. and Resource Economics NC State University

  2. Introduction • In the past – temporary ad hoc disaster assistance payments • 2008 Farm Bill – create more permanent disaster assistance program • Supplemental Agricultural Disaster Assistance (SADA) Program

  3. Introduction • Supplemental Revenue Assistance (SURE) Program • Four other programs: • Tree Assistance Program (TAP), Emergency Assistance Program for Livestock, Honeybess, and Farm-Raised Fish (ELAP), Livestock Indemnity Program (LIP), Livestock Forage Disaster Program (LFP)

  4. Goals Today • Provide a basic overview of the SURE program • Provide some implications for crop insurance decision making • CAVEAT: Some details of the legislation still being interpreted by FSA

  5. SURE Program Basics • Whole-farm disaster assistance program • Similar to revenue insurance • Tied to crop insurance coverage and farm planted acreage • If whole-farm actual revenue less than SURE guarantee, then receive SURE payment that is 60% of difference

  6. SURE Eligibility and Requirements • Located in a declared disaster county (or contiguous to a disaster county) • Or must have 50% production loss due to weather-related causes • Requires purchase of crop insurance or NAP policies for all crops

  7. SURE Eligibility and Requirements • Note sales closing dates for crop insurance and NAP • Crop insurance: Feb 28/March 15 (spring planted crops), Sept. 30 (fall planted crops), perennials (Nov 20) • NAP: December 1 (for 2009)

  8. SURE Guarantee and Cap • SURE Guarantee • Sum of all crop insurance guarantees increased by 15% for insured crops (by 20% for NAP crops) • Whole-farm guarantee • SURE Cap • 90% of SURE Expected Revenue on all crops

  9. SURE Guarantee and Cap • SURE Guarantee Calculation

  10. SURE Guarantee and Cap • SURE Cap • 90% of the sum of SURE Expected Revenues calculated as: • “SURE Guarantee to use” based on min of guarantee or cap

  11. SURE Actual Revenue • If SURE Actual Revenue, below SURE Guarantee then receive SURE payment • SURE Actual Revenue is sum of: • All revenues from each crop, 15% of DP, all CCP or ACRE payments, all mktg. loan benefits, all crop insurance/NAP indemnity (including prevented planting payments), all other disaster assistance payments

  12. SURE Actual Revenue • Actual Revenue calculated as: • Natl. Season-Ave. Price - Marketing Year Price determined by USDA; not known till Sept/Oct of following crop year

  13. SURE Payment SURE Payment = 60% x (SURE Guarantee – SURE Actual Revenue) -Payment limit of $100,000 per year per eligible producer

  14. Example SURE Calculation • 200 acre farm with 100 corn acres 100 soybean acres • 75% APH crop insurance • APH Yield = 97 bu/ac corn, 30 bu/ac soybeans • Base prices - $4.78/bu corn, $11.85/bu soybeans

  15. Example SURE Calculation • SURE Guarantee = $70,652.55 • Below SURE cap of $73,724.40 • 0.9 x SURE Expected Revenue = 0.9 x $81,916 = 73,724.40

  16. Example SURE Calculation • Assume low yields at harvest due to drought. 50 bu/ac corn, 10 bu/ac soybeans • County declared as disaster county • Assume marketing year price is $5.00/bu for corn and $12/bu for soybeans • Received $4000 DP for whole farm • No other program benefits

  17. Example SURE Calculation • SURE Actual Revenue is based on sum of actual revenues for corn and beans, indemnity payments for corn and beans, and 15% of direct payments in this case. • Actual Revenue = $37,000

  18. Example SURE Calculation • Crop Insurance Indemnities = $25,687 • Have payments since actual yield below yield guarantee • 15% of DP = $600

  19. Example SURE Calculation • SURE Actual Revenue = $37k + $25,687 + $600 = $63,287 • SURE Guarantee = $70,652.55 • SURE Payment = 60% x [$70,652 - $63,287] = $4,419.33 ** See spreadsheet (Table 1)

  20. Language Still to be Interpreted • Definition of Disaster County:

  21. Language Still to be Interpreted • For non-disaster declared county – must be continuous and 50% loss? Should it be continuous or 50% loss? • What is 50% production loss? • At least one crop has 50% loss? All crops have 50% loss? Average yield loss across all crops need to be 50%?

  22. Language Still to be Interpreted • Technical corrections – • Must have at least 10% loss on at least one crop of economic significance • Only crops of economic significance counts • Eliminates crop insurance NAP requirements for pasture and rangeland (covered under LFP)

  23. Language Still to be Interpreted • Base Price vs. Harvest Price for revenue insurance with harvest price option • For CRC/RA-HPO, will higher of harvest vs base be used to set guarantee? • Erodes value if not

  24. Language Still to be Interpreted • How to calculate APH yields for GRP, GRIP? Use county yields? • How to verify losses at field level for GRP/GRIP/AGR-Lite?

  25. Language Still to be Interpreted • What coverage levels for GRP/GRIP? Prevented Planting? • What is equitable treatment? • Net versus Gross Indemnity to count against SURE Guarantee?

  26. Conclusions & Implications • SURE – additional safety net related to crop insurance choices • Need to sign-up for crop insurance and NAP coverage • Note the “lag” in receiving SURE payments

  27. Conclusions & Implications • Insure at higher coverage levels (but not at or above 80% -- will hit 90% cap) • Weigh expected returns from insurance and SURE against premium costs • CRC/RA-HPO insurance value eroded if SURE guarantee not based on harvest price (plus costs more than APH RA-BP)

  28. Conclusions & Implications • If “large” farm, SURE may not be very important (since $100,000 payment limit) • Over time, SURE provides incentives for less diversification (since whole-farm revenue guarantee)

  29. Additional Resources • USDA FSA webpage • Calculators and fact sheets • Various university extension publications • NC State Crop Insurance Webpage

  30. Thank You! • Questions? Contact: Rod M. Rejesus Dept. of Agricultural and Resource Economics NC State University Tel. No. (919)513-4605 Email: rod_rejesus@ncsu.edu

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