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 2008 Farm Bill – create more permanent disaster assistance program –Supplemental Agricultural Disaster Assistance (SADA) Program

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 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 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 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 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 –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 Cap SURE Guarantee Calculation

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

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 Calculation SURE Guarantee = $70, Below SURE cap of $73, –0.9 x SURE Expected Revenue = 0.9 x $81,916 = 73,724.40

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 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 Calculation Crop Insurance Indemnities = $25,687 –Have payments since actual yield below yield guarantee 15% of DP = $600

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

Language Still to be Interpreted Definition of Disaster County:

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%?

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 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 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 Interpreted

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

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 & 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 & 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 USDA FSA webpage –Calculators and fact sheets Various university extension publications –NC State Crop Insurance Webpage

Thank You! Questions? Contact: Rod M. Rejesus Dept. of Agricultural and Resource Economics NC State University Tel. No. (919)