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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

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
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
introduction3
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)
goals today
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
sure program basics
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
sure eligibility and requirements
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
sure eligibility and requirements7
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)
sure guarantee and cap
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
sure guarantee and cap9
SURE Guarantee and Cap
  • SURE Guarantee Calculation
sure guarantee and cap10
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
sure actual revenue
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
sure actual revenue12
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
sure payment
SURE Payment

SURE Payment =

60% x (SURE Guarantee –

SURE Actual Revenue)

-Payment limit of $100,000 per year per eligible producer

example sure calculation
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
example sure calculation15
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
example sure calculation16
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
example sure calculation17
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
example sure calculation18
Example SURE Calculation
  • Crop Insurance Indemnities = $25,687
    • Have payments since actual yield below yield guarantee
  • 15% of DP = $600
example sure calculation19
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)

language still to be interpreted
Language Still to be Interpreted
  • Definition of Disaster County:
language still to be interpreted21
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%?
language still to be interpreted22
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)
language still to be interpreted23
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
language still to be interpreted24
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?
language still to be interpreted25
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?
conclusions implications
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
conclusions implications27
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)
conclusions implications28
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)
additional resources
Additional Resources
  • USDA FSA webpage
    • Calculators and fact sheets
  • Various university extension publications
    • NC State Crop Insurance Webpage
thank you
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