REPORT OF COMITILE TO ESTABLISH SPECIAL DISASTER PAYMENT CRITERIA For purposes of this report, the applicable paragraphs and subparagraphs under Title III Wheat of the Agriculture and Food Act of 1981 (hereinafter referred to as the Act) will be used. The criteria developed shall also be applied to the applicable Title and paragraphs for Feed Grains, Cotton, and Rice. Excerpts from Agriculture and Food Act of 1981 Section 107 B(b) (2) (A) "Except as provided in subparagraph (C) of this paragraph, the Secretary shall make a prevented planting disaster payment Section 107 B(b) (2) (B) "Except as provided in subparagraph (C) of this paragraph, the Secretary shall make a reduced yield disaster payment to the Section 107 B(1) (2) (C) "Producers on a farm shall not be eligible for disaster payments under this paragraph if crop insurance is available to them under the Federal Crop Insurance Act with respect to their wheat acreage." Section 107 B (b) (2) (D) "Notwithstanding the provisions of subparagraph (C) of this paragraph, the Secretary may make disaster payments to producers on a farm under this paragraph whenever the Secretary determines that "(i) as the result of drought, flood, or other natural disaster, "(ii) Federal crop insurance indemnity payments and other forms "(iii) additional assistance must be made available to such The Secretary may make such adjustments in the amount of payments made available under this subparagraph with respect to individual farms so as to assure the equitable allotment of such payments among producers, taking into account other forms of Federal disaster assistance provided to the producers for the crop involved." Development of Criteria Before determining the criteria to be used in implementing the provisions of subparagraph Section 107 B(b)(2) (D), the committee members felt that they must first determine what constitutes "substantial losses of production" and "an economic emergency". The Act does not define either of these terms. Substantial Losses of Production In reviewing other emergency type programs, it was noted that the Secretary has determined that a reasonable definition for "substantially affected" is not less than a 30 percent loss in annual production, translated into gross dollar value. This definition is applied to FmHA's emergency (EM) loan eligibility requirements. However, the committee did not feel that this same definition should be used in determining the criteria to be used in designating those counties that would be eligible for the Special Emergency Disaster Programs. Normal seasonal fluctuations in productivity of 25 to 30 percent or more are common. The committee felt that the percent of loss for the Special Emergency Disaster Program should be much greater. Several factors were considered in making this determination. They include: 1. The expanded Federal Crop Insurance Program now offers coverage of the program crops in all counties. 2. The Congress has mandated that the crop insurance program replace the disaster program. The committee therefore determined that the percent of loss necessary to determine whether a county would be eligible for the Special Emergency Disaster Program should be set at 60 percent of the county's crop production, including hay and pasture. This percentage of loss should discourage producers from relying on the implementation of this program and should provide more of an incentive to take advantage of the protection offered by the Federal Crop Insurance Program. Economic Emergency The Act further states, "that such losses have created an economic emergency." The committee determined that a 60 percent loss of crop production, including hay and pasture, applied to the total crop production of producers on a farm would constitute an economic emergency. It was felt that to consider a reduced yield or the prevented planting of any single one of the eligible crops as an economic emergency would ignore the performance of other crops on the farm unit. Yield losses converted to dollar losses are economic losses. Data used to calculate losses in all but the most obvious cases are to be actual yields determined after harvest of the crop. The normal year's value will be determined by establishing a normal year yield and price. The normal year yield will be the average yield of the five years immediately preceding the disaster year for each crop, including hay and pasture grown in the county. The normal year price will be the average commodity price for the three years immediately preceding the disaster year for each crop. Yields and prices used to establish the value of normal year production will be obtained from the Statistical Reporting Service (SRS). Yields used to establish the disaster year's production will be obtained from Damage Assessment Reports prepared by the USDA County Emergency Board. Prices used to establish the value of a disaster year's production will be the same as those used to establish normal year values. In cases where crops produced and/or prices are not available from SRS, the information will be obtained from other reliable sources. Insufficient Assistance to Alleviate the Economic Emergency The Act further provides that disaster payments may be made when "Federal The committee interprets this provision to mean that the Congress intended that the disaster payments may be implemented only as a means of last resort. Therefore, the disaster payments would only be available to producers in a county when the economic loss is 60 percent or more after considering any Federal crop insurance indemnity payments and other forms of assistance made available by the Federal Government. However, in order to encourage FCIC participation, any Federal crop insurance indemnity payments made to a producer would not be deducted from the amount of computed disaster payments. This has the potential of serving as a disincentive for farmers to purchase Federal crop insurance if they believed that the Federal Government would deduct Federal Crop Insurance Corporation (FCIC) payments from the special disaster program payments. This reluctance to pay for Federal crop insurance could adversely affect the integrity of the FCIC program, especially if noninsureds could collect special disaster payments and the FCIC insureds could not, if they were receiving a substantial indemnity. It would be unjust to penalize the farmer who manages his risks through the use of insurance as a risk management tool, and reward the uninsured not utilizing this risk management tool. If special disaster payments are to be made, they should be made to all farmers regardless of whether insured or not. The Act provides that disaster payments are available in those counties that do not have crop insurance. It does not mention availability of FmHA EM loans. Therefore, in order to be uniform, the eligibility criteria for special disaster payments will not address whether or not FmA EM loans are available. However, ASCS and FmHA will exchange information essential to the elimination of duplicating compensatory disaster benefits from ASCS and FmHA for the same disaster losses. This will be accomplished in the same manner as is currently done under the regular disaster payment program. The procedure is: 1. 2. 3. FHA County Supervisors, prior to determining the maximum amount FmHA County Supervisors will, in a timely manner, provide ASCS county offices with the names and addresses of farmers or ranchers who have had an actual loss emergency loan approved. ASCS County Executive Directors will consult with the FmHA County Supervisor before issuing disaster payments to farmers or ranchers for whom FmHA has requested verification of farm acreage, production, and benefits from ASCS. Sight drafts for payments of ASCS disaster benefits for farmers and ranchers whose FmHA loan application has been approved, will be prepared to show FmHA as joint payee and forwarded to the FmHA county office. Designation On A County Basis Crop insurance is made available on a county-by-county basis and part of the criteria in the Act for determining eligibility for disaster payments is based on crop insurance eligibility. Therefore, the committee determined that any designation for special disaster payments would be made on a countyby-county assessment of need. Designation Criteria Consideration for implementation of the special disaster payments will be completely independent of a Presidential Declaration or a Secretarial Determination under the FmHA regulations. For a county to be considered for the special disaster payments program, the Governor must specifically request the program within 90 days from the last day of the occurrence of the natural disaster. The CHAIRMAN. Mr. Evans has one more question. Mr. EVANS of Iowa. Thank you, Mr. Chairman. As I look at the programs here I see on that is notably absent. I don't know whether you people put this together or the committee does and it is not relevant really. But you also have the authority I think in addition to issuing Farmers Home Administration emergency disaster loans, the authority to provide insurance on loans through commercial lending institutions. And that that authority has not been used in many years. I just wonder if there might be some merit in examining that closely this-at this point. It would reduce the tremendous administrative load that will be put on the Farmers Home Administration. It doesn't require borrowing Federal money. It brings to bear the problem of tremendous resource of farm lending offices out there scattered all across the country who are very good at administering loans. Last but not least, I think it would keep in the commercial banking and commercial credit system a lot of farmers who are otherwise going to move over to Farmers Home Administration. Now the really tough cases are going to come to you. There isn't any question about that. But that number can be reduced dramatically I think by giving commercial bankers, say, an 85-percent loan guarantee under the same set of qualifications here that you have disaster loans. There are a lot of banks out there that are in trouble as well as farmers. They are going to be very reluctant to issue loans to a lot of farmers that are marginally in or out of the commercial banking system right now. You have the authority to do this. I think it has a lot of merit. I would strongly urge the Department to look seriously at doing that. We have got a lot of banks in southern Iowa that are going to be very reluctant to renew loans to very, very good farmers just because they are on the verge. This looks like a cheap way to me for the Federal Government to handle that fraction of the farm population that fits in that category. I just make that as a statement to you for consideration. Thank you, Mr. Chairman. Secretary BLOCK. Mr. Chairman. The CHAIRMAN. Mr. Secretary. Secretary BLOCK. May I ask if there are other questions that Mr. Naylor or Mr. Lesher could answer them as I must leave at this time? The CHAIRMAN. Mr. Secretary, no, I was going to conclude at this time. Secretary BLOCK. OK. The CHAIRMAN. I just wanted to state that in case a member who had not yet had an opportunity to submit questions to you or your colleagues did not get word, I would hope that you would agree to receive questions in writing for the record in case any member was not able to return. Would that be agreeable for you? Secretary BLOCK. Yes, sir, and I want to complement you and the committee for the large interest and concern here today. It is an important issue of grave concern to all of us. The CHAIRMAN. Well, we thank you for your courtesy for being here. |