As years go by, as the farm population declines, and as the federal budget becomes more of a political issue, the Farm Bill becomes more controversial. One of the lightning rod issues this year is proposed permanent funding to provide disaster assistance. While farmers have always fought adverse weather, which was one of the founding reasons for initial farm legislation, disaster aid is a more relatively recent addition. Since disaster aid is issued nearly every year there are strong supporters. Since disaster aid is issued nearly every year there are strong opponents who say the system needs fixed.

Chairman Collin Peterson of the U.S. House Agriculture Committee has included in his version of the Farm Bill provisions for permanent disaster funding, to prevent the need for perennial emergency legislation. Agriculture Policy Specialist Carl Zulauf at Ohio State University says “To qualify for emergency assistance, a producer (A) must have purchased insurance if it exists for the crop at a minimum of 50% yield coverage at 100% of the insurable price or must have paid the fee for a crop covered under the Non-insured Crop Assistance Program, and (B) farm in a county declared a disaster county or in a county contiguous to such county.” While this is a “pay to play” disaster program there is also a $100,000 limit on benefits.

In addition to a tree damage and livestock death loss elements, the heart of the program is a whole farm crop protection program that has many parallels to the crop insurance program. Zulauf’s analysis includes:

• Payment equals 50% of the difference between the farm’s disaster assistance guarantee and total revenue.
• The Disaster Assistance Guarantee for each insurable crop that is calculated on county yield, countercyclical payments, and crop insurance yield guarantee.
• A Disaster Assistance Guarantee for each non-insurable crop is also available.
• A Disaster Assistance Guarantee for a crop can not exceed 90% of the farm’s expected revenue from the crop, which is calculated with grazing value, production history, counter cyclical payment, the insurance price guarantee, and acreage that is planted or intended to be planed.
• Total Farm Revenue for each crop and for the total farm is estimated using acreage harvested or grazed, average market price for the first 5 months of the marketing year, crop insurance indemnity payment, and any other federal disaster payment.

Opponents call for renovation of the crop insurance program to achieve what is needed by producers. Supporters call for assistance to farmers needing to cover the gaps in crop insurance. Zulauf says there are many questions that need to be answered about the proposal from Chairman Peterson.

1) He calls the proposal a shallow los disaster program, since crop insurance indemnities are included in total revenue, but the disaster program covers losses associated with the deductible.
2) No premium is paid for the disaster aid program, but the expected payments provide an incentive to use the already-subsidized crop insurance program.
3) Since crop insurance is already subsidized, should that be deducted from the disaster assistance program payment.
4) Total farm revenue does not include loan deficiency payments or counter cyclical payments, so Zulauf says farmers are being paid twice for the risk of low prices.
5) Zulauf says a moral hazard exists, since there is a floor under the yield guarantee, and with a low yield and no future loss in payments, there may be an incentive to cheat on yield.
6) By farming in multiple counties, maybe only one of which is declared a disaster, that qualification for assistance encourages geographical diversification and larger farms.

That is Carl Zulauf's analysis of the disaster assistance proposal. Your thoughts are welcomed about whether there should be disaster assistance as a permanent element in the Farm Bill or not. Have prior disaster plans helped your operation? Could they be exchanged for improved crop insurance coverage? Use the comment space provided below.

Summary:
The politically charged issue of disaster assistance will soon be debated within the House Agriculture Committee, and possibly the House floor, as part of the 2007 Farm Bill. Despite the lack of consensus on inclusion of disaster aid, the proposal up for debate would require farmers to purchase crop insurance before they could collect disaster aid on areas that crop insurance does not cover. The proposal depends on calculations that are complex, leave out some calculations, and may leave open to door to dishonesty in reporting yields.