Agricultural Disaster Assistance

Order Code RS21212 Updated April 10May 8, 2006 CRS Report for Congress Received through the CRS Web Agricultural Disaster Assistance Ralph M. Chite Specialist in Agricultural Policy Resources, Science, and Industry Division Summary The U.S. Department of Agriculture (USDA) offers several permanently authorized programs to help farmers recover financially from a natural disaster, including federal crop insurance, the noninsured assistance program and emergency disaster loans. Since 1988, Congress regularly has made supplemental financial assistance available to farmers and ranchers, primarily in the form of crop disaster payments and emergency livestock assistance. A severe drought in portions of the Midwest and Hurricanes Katrina and Rita in the Gulf affected 2005 agricultural production in those regions. So far, Congress has provided nearly $1 billion in emergency agricultural assistance, primarily for the cleanup and rehabilitation of damaged farmland and watersheds in a supplemental appropriations act (P.L. P.L. 109-148). USDA also has transferred $250 million of existing funds for crop, livestock, tree, and aquaculture assistance, exclusively for 2005 hurricane victims. To date, Congress has not authorized any emergency crop or livestock payments for 2005 losses. However, the Senate-reportedpassed version of a pending FY2006 supplemental appropriations bill (H.R. 4939) contains an adopted committee amendment that would provide an estimated additional $43.9 billion in various forms of farm assistance, including payments for major crop and livestock losses caused by any 2005 disaster. This report will be updated as 2005 disaster. The Administration has stated that it will veto the bill if conferees adopt the provision, or any other major spending initiatives above the Administration request. This report will be updated as conditions warrant. Ongoing Major USDA Disaster Programs USDA has at its disposal three major programs designed to help crop producers recover from the financial effects of natural disasters — federal crop insurance, noninsured assistance program (NAP) payments, and emergency disaster loans. All three of these programs have permanent authorization and receive regular annual funding. Federal Crop Insurance The federal crop insurance program is administered by USDA’s Risk Management Agency. The program is designed to protect crop producers from unavoidable risks associated with adverse weather, and weather-related plant diseases and insect Congressional Research Service ˜ The Library of Congress CRS-2 infestations. A producer who chooses to purchase an insurance policy must do so by an Congressional Research Service ˜ The Library of Congress CRS-2 administratively determined deadline date, which varies by crop and usually coincides with the planting season. Crop insurance is available for most major crops. The federal crop insurance program was instituted in the 1930s and was subject to major legislative reforms in 1980, and again in 1994 and 2000. The Agriculture Risk Protection Act of 2000 (P.L. 106-224) pumped $8.2 billion in new federal spending over a five-year period into the program primarily through more generous premium subsidies to help make the program more affordable to farmers and enhance farmer participation levels, in an effort to preclude the need for ad-hoc emergency disaster payments. Since 2000, the federal subsidy to the crop insurance program has averaged about $3.3 billion per year, up from an annual average of $1.1 billion in the 1990s and about $500 million in the 1980s. Nearly two-thirds of the current federal spending is used to subsidize producer premiums, and the balance primarily covers the government share of program losses and reimburses participating private insurance companies for their administrative and operating expenses. Under the current crop insurance program, a producer who grows an insurable crop selects a level of crop yield and price coverage and pays a premium that increases as the levels of yield and price coverage rises. However, all eligible producers can receive catastrophic (CAT) coverage without paying a premium. The premium for this portion of coverage is completely subsidized by the federal government. Under CAT coverage, participating producers can receive a payment equal to 55% of the estimated market price of the commodity, on crop losses in excess of 50% of normal yield, or 50/55 coverage. Although eligible producers do not have to pay a premium for CAT coverage, they are required to pay upon enrollment a $100 administrative fee per covered crop for each county where they grow the crop. The fee can be waived by USDA for financial hardship hardship cases. Any producer who opts for CAT coverage has the opportunity to purchase additional insurance coverage from a private crop insurance company. For an additional premium paid by the producer, and partially subsidized by the government, a producer can can increase the 50/55 catastrophic coverage to any equivalent level of coverage between 50/100 and 85/100, (i.e, 85 percent of yield and 100 percent of the estimated market price), in increments of 5%. For many insurable commodities, an eligible producer can purchase revenue insurance. Under such a policy, a farmer potentially can receive an indemnity payment when actual farm revenue falls below the target level of revenue, regardless of whether the shortfall in revenue was caused by poor production or low farm commodity prices. P.L. 106-224 requires USDA to subsidize premiums for revenue insurance coverage at the same rate as traditional crop insurance policies. P.L. 106-224 also required USDA to to conduct two or more pilot programs to evaluate the effectiveness of revenue insurance for for livestock farmers. New livestock insurance pilot programs were established for 2002 for for hog producers and were expanded in subsequent years. (For more information, see the the “Federal Crop Insurance” section of CRS Report RL33037, Previewing a 2007 Farm Bill Bill and CRS Report RL30739, Federal Crop Insurance and the Agriculture Risk Protection Protection Act of 2000 (P.L. 106-224).) CRS-3 Noninsured Assistance Program (NAP) Producers who grow a crop that is currently ineligible for crop insurance may be eligible for a direct payment under USDA’s noninsured assistance program (NAP). NAP has permanent authority under the Federal Crop Insurance Reform Act of 1994 (P.L. 103354, as amended), and is administered by USDA’s Farm Service Agency. The program’s principal clientele are farmers who grow a crop that is ineligible for federal crop insurance. NAP is not subject to annual appropriations. Instead, it receives such sums as are necessary through USDA’s Commodity Credit Corporation, which has a line of credit with the U.S. Treasury to fund an array of farm programs. Eligible crops under NAP include any commercial crops grown for food or fiber that are ineligible for crop insurance, and include mushrooms, floriculture, ornamental nursery, Christmas tree crops, turfgrass sod, aquaculture, and ginseng. Trees grown for wood paper or pulp products are not eligible. To be eligible for a NAP payment, a producer first must apply for coverage under the program by the application closing date, which varies by crop, but is generally about thirty days prior to the final planting date for an annual crop. Like catastrophic crop insurance, NAP applicants must also pay a $100 per crop service fee at the time of application. In order to receive a NAP payment, a producer must experience at least a 50% crop loss caused by a natural disaster, or be prevented from planting more than 35% of intended crop acreage. For any losses in excess of the minimum loss threshold, a producer can receive 55% of the average market price for the covered commodity. Hence, NAP is similar to catastrophic crop insurance coverage in that it pays 55% of the market price for losses in excess of 50% of normal historic production. A producer of a noninsured crop is subject to a payment limit of $100,000 per person and is ineligible for a payment if the producer’s qualifying gross revenues exceed $2 million. USDA estimates FY2005 NAP payments of $247 million. Emergency Disaster Loans When a county has been declared a disaster area by either the President or the Secretary of Agriculture, agricultural producers in that county may become eligible for low-interest emergency disaster (EM) loans available through USDA’s Farm Service Agency. Producers in counties that are contiguous to a county with a disaster designation also become eligible for an EM loan. EM loan funds may be used to help eligible farmers, ranchers, and aquaculture producers recover from production losses (when the producer suffers a significant loss of an annual crop) or from physical losses (such as repairing or replacing damaged or destroyed structures or equipment, or for the replanting of permanent crops such as orchards). A qualified applicant can then borrow up to 100% of actual production or physical losses (not to exceed $500,000) at a below-market interest rate (which is currently 3.75%). Once a county is declared eligible, an individual producer within the county (or a contiguous county) must also meet the following requirements for an EM loan. A producer must (1) be a family farmer and a citizen or permanent resident of the U.S.; (2) experience a crop loss of more than 30 percent or a physical loss of livestock, livestock products, real estate or property; and (3) be unable to obtain credit from a commercial lender, but still show the potential to repay the loan. Applications must be received within eight months of the county’s disaster designation date. Loans for nonreal estate CRS-4 purposes generally must be repaid within one to seven years; loans for physical losses to to real estate have terms up to 20 years. Depending on the repayment ability of the producer producer and other circumstances, these terms can be extended to 20 years for nonreal estate losses and up to 40 years for real estate losses. The EM loan program is permanently authorized by Title III of the Consolidated Farm and Rural Development Act (P.L. 87-128), as amended, and is subject to annual appropriations. Traditionally, an appropriation was made for EM loans within the regular agriculture appropriations bill. However, most of the funding for the program in recent years has been provided through emergency supplemental appropriations. Emergency provisions in the Consolidated Appropriations Act of 2000 (P.L. 106-113) provided funding to make $547 million in EM loans over a multi-year period. Total EM loans made were $90 million in FY2001, $58 million in FY2002, just under $100 million in FY2003, $30 million in FY2004, and $23 million in FY2005. Recent Congressional Action Since 1988, Congress frequently has supplemented the regularly funded disaster assistance programs with additional emergency aid. Funding for these programs generally generally are provided in emergency supplemental appropriations bills. Among these major ad-hoc farm disaster programs are (1) crop disaster payments, (2) livestock assistance, (3) tree assistance, and (4) emergency conservation assistance. (For a history of the congressional response to agricultural disasters, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief History of Supplemental Appropriations, FY1989-FY2006.) For the 2005 crop year, agricultural production was adversely affected by a severe drought drought in portions of the Midwest and by an extremely active and severe hurricane season in the Gulf states. To date, Congress has provided just over $1 billion in emergency emergency supplemental assistance for USDA programs (within P.L. 109-148), primarily for farm debris cleanup ($200 million), watershed rehabilitation ($300 million), and a new new program to assist nonindustrial timber growers for 2005 hurricane losses ($404 million). Separately, USDA has transferred $250 million of existing funds to provide direct direct payments for crop, livestock , tree, and aquaculture losses, exclusively for 2005 hurricane hurricane victims. Agricultural Provisions in Pending Supplemental Bill (H.R. 4939) Some farm groups are pressuring Congress to provide additional farm disaster assistance for 2005 production losses caused by any natural disaster, not limited to hurricanes. The Senate-reportedpassed version of a pending FY2006 emergency supplemental bill (H.R. 4939) contains an adopted committee amendment that would provide $4 billion 3.9 billion in various forms of farm disaster and economic assistance, as estimated by the Congressional Budget Office (CBO). The House-passed version of H.R. 4939 does not contain any agricultural disaster assistance. A free-standing House bill (H.R. 5099), identical to the Senate adopted amendment, was introduced on April 5, 2006. CRS-5 The Senate-reportedpassed version of H.R. 4939 includes an estimated $1.5 billion in various types of crop disaster payments, $619 million in livestock assistance, and $1.5 CRS-5 billion in “economic loss” payments to certain growers of government-supported commodities who have been adversely affected by high energy costs. The Administration opposes the Senate-adopted provision and has threatened to veto H.R. 4939 if it contains spending above what it has requested. Crop Disaster Payments Congress has provided ad-hoc crop disaster payments in various emergency supplemental acts for nearly every crop year since 1988. H.R. 4939, as reportedpassed by the Senate, would require USDA to provide crop disaster payments in a similar fashion as past disaster supplementals. Under the Senate provision, a crop producer would be potentially eligible for assistance if individual losses to a 2005 crop were in excess of 35%, caused by any type of disaster, regardless of whether the farmer was in a declared disaster area. For losses in excess of the 35% threshold, an eligible producer could then receive a payment equal to 50% of the established price for the commodity. Payments also also would be triggered if the producer harvested a disaster-damaged crop, but experienced a lower market price because of quality losses. Maximum payments would be $80,000 per person, and individuals with adjusted gross income in excess of $2.5 million would be ineligible, as in the past. Crop producers could receive disaster payments even if they had waived crop insurance coverage or declined participation in the noninsured assistance program (NAP), but would be required to purchase crop insurance or enroll in NAP for the next two crop years. Although CBO estimates payments of $1 billion under the Senate provision, the bill allows for “such sums as necessary” to fully fund the payment formula. All commercially grown crops would be eligible for a payment under this formula except for cottonseed and sugarcanesugarcane and sugar beets, which have a separate disaster payment programsprogram in the Senate provision, estimated at $286 million by CBO. The Senate bill also includes separate payment programs for dairy production losses caused by a 2005 hurricane hurricane ($25 million), for cottonseed losses ($15 million), and for fruit, vegetable, and nursery growers in hurricane-affected counties in Florida (estimated by CBO at $150 million). Livestock Assistance The Senate-reportedpassed version of H.R. 4939 contains funding for an array of emergency emergency livestock programs that have been implemented on an ad-hoc basis in past years. Such sums as necessary (estimated at $549 million) would be provided for a Livestock Livestock Compensation Program (LCP), similar to the LCP that was administered by USDA in 2002. The purpose of the program is to compensate livestock growers for the additional additional cost of having to procure livestock feed in the marketplace following a disaster. It would provide payments to all producers of beef, dairy, sheep, goats, and catfish in any county county that was declared a disaster area by the Secretary between January 1, 2005, and the date date of enactment, regardless of the individual producer’s loss experience. USDA would be be required to use the same payment mechanism as in 2002, but the Senate provision limits limits payments to 75% of the 2002 payment rates. CRS-6 The Senate bill also would authorize necessary funds (estimated at $45 million) for a Livestock Indemnity Program to compensate producers for livestock killed by a natural disaster in 2005 or in 2006 (up to the enactment date). The payment rate would be left to the discretion of the Secretary of Agriculture, but the rate could not be set less than 30% percent of the market value of the applicable livestock at the time of the disaster. The bill also would indemnify contract poultry growers that suffered income losses in CRS-6 hurricane-affected counties (estimated at $10 million), and would provide $15 million to help producers replace and retain ewe lamb breeding stock. Tree Assistance Program The Senate-reportedpassed bill provides necessary emergency funds (estimated at $35 million) for the Tree Assistance Program (TAP), which provides financial assistance to orchard growers to help them replant eligible trees, bushes, and vines that have been damaged or destroyed by a natural disaster. A grower who loses more than 15% of eligible trees to a natural disaster can be reimbursed for 75% of the cost of replanting eligible losses. Payments are limited to 500 acres and no more than $75,000 per person. TAP was permanently authorized by the 2002 farm bill (P.L. 107-171), subject to annual appropriations. The program has been funded on an ad-hoc basis in several years since 1992 for eligible growers anywhere in the country. The Senate bill would allow TAP payments for any county affected by a 2005 hurricane. Conservation Assistance The emergency conservation program (ECP) provides funds to farmers and ranchers for sharing the cost of rehabilitating farmland damaged by natural disasters, and for carrying out water conservation measures during severe drought. It is permanently authorized, subject to annual appropriations. However, almost all of its funding in recent years has come from emergency supplemental appropriations. The Senate-reportedpassed bill would provide $17 million to the ECP, in addition to the $200 million already provided by the previously enacted FY2006 supplemental (P.L. 109-148). The Senate-reportedpassed bill also provides $109 million in Emergency Watershed Protection funding to supplement the $300 million already provided by P.L. 109-148. Economic Loss Payments The Senate-reportedpassed bill also provides an estimated $1.5 billion in supplemental payments to growers of grains, cotton, peanuts, and oilseeds who receive direct payments under the farm commodity price and income support programs authorized by the 2002 farm bill. These payments arewould be available to eligible producers nationwide, regardless of whether they were subject to crop losses. Report language (S.Rept. 109-230) 109230) accompanying the bill states that the payments are towould compensate crop producers “for high energy costs related to agricultural production.” Under the Senate language, an eligible eligible producer would receive an additional payment of 30 percent of the direct payment payment received on a 2005 crop. Similar market loss payments were made in FY1999-FY2001 FY1999FY2001 in various supplementals to compensate producers for then-prevailing low commodity commodity prices. For fruit, vegetable, livestock and dairy producers, the Senate bill provides a combined total of $100 million to the states, with the condition that the funds be used in some manner to support these commodities.