a series of hearings on the subject of crop insurance, and in my work in the Department of Agriculture I was impressed with the need of crop insurance on the part of the farmer. It seemed to me that other business interests were in position to obtain insurance, if so desired, against practically every type of risk, and I could see no good reason why the farmer should not be in a position to obtain such insurance covering the risks involved in crop production.

As has been pointed out on many occasions, the first insurance written was essentially against weather hazards, particularly in connection with navigation. Well, the hazards of the farmer in the production of crops are very largely also weather hazards, and it has seemed to me that it should be possible to provide the farmer with some measure of protection in connection with the annual investment that he makes in farm crops.

Turning to the present bill, if that is permissible, I want to say that I am in accord with the general principles laid down in that bill, and I have particular reference to the insurance or underwriting features of the bill. I have had no direct personal experience in connection with the warehousing of farm commodities and have given no great amount of study to that question; neither have I made any special study of the management question that is involved in this bill, and if my opinion is worth considering on any phase of it, I think it would be on the direct insurance or underwriting principles involved.

It has been my opinion for a great many years, as I could prove by some of the things I have written, that the most practical form of crop insurance is perhaps what might be called "yield insurance," rather than income insurance, and the present bill, as I understand it, is intended to provide yield insurance on a sane and conservative basis. There are only one or two places in the present bill where I think it is a little unfortunate in the wording. I don't know whether would care to have me point that out.

Senator POPE. We would be very glad to have you point it out. Mr. VALGREN. I am inclined to the view that the intent of that wording is correct, but it does not state the intent, as I see it, very accurately. I have particular reference to lines 8 and 9 on page 7 and lines 19 and 20 on the same page, where it attempts to lay down the principle in line with which appraised yields shall be determined and the rates for premiums shall be determined. It seems to me that what the bill should say on that point is that the board should attempt to arrive at an appraised yield for each insured farm, which may fairly represent the probable future yield. That, as I understand it, is the real purpose.

It seems to me that the board could comply with the provision of the present bill that the average yield fixed for farms in the same area, which are subject to the same conditions, shall be fair and just, without having it fair and just as between two farms located in different areas. It should be fair and just as between all the farms insured.

Senator POPE. Have you thought of any language that you might suggest to accomplish the purpose you have in mind?

Mr. VALGREN. I have suggested the language right here, if you care to take it, Senator.

Senator POPE. Well, in order that we may have it correctly in the record, just indicate by line and page the wording that you suggest.

7

Mr. VALGREN. I would suggest that lines 8, 9, and 10, on page be made to read as follows, beginning perhaps with the word "board" in line 7:

the board may prescribe to the end that the appraised average yield fixed for each insured farm may fairly represent the probable future yield.

I am not sure that that is the best wording, but I think that it states the purposes somewhat more accurately than the present wording.

Senator SCHWELLENBACH. Will you give me that fully now?
Mr. VALGREN (reading):

the board may prescribe to the end that the appraised average yield fixed for each insured farm may fairly represent the probable future yield.

Senator POPE. Now, would you begin on line 4, at the beginning of the sentence, and read it down to the end of that sentence? I think that would make it a little clearer. Read the entire sentence amended as you suggest, beginning on line 4.

Mr. VALGREN. Or would it be as well then to begin with the beginning of that sentence?

Senator POPE. The beginning of line 4 of this print is the beginning of that sentence. Well, beginning at the beginning of the sentence in whatever line it appears.

Mr. VALGREN. I would have that sentence with reference to fixing the amount of coverage for each individual farm and beginning with line 4 read as follows:

Such insurance shall cover a percentage, to be determined by the board, of the recorded or appraised average yield of wheat on the insured farms for a representative base period, subject to such adjustments as the board may prescribe, to the end that the appraised average yield fixed for each insured farm may fairly represent the probable future yield.

Senator FRAZIER. Then, do you mean to base it on just the yield of that particular farm or all farms that are insured?

Mr. VALGREN. No; let me say that this particular provision in which I suggested that amendment involves the board's right and duty to adjust the average yield that they find for a given farm in such a way that it may be fair and just.

Senator FRAZIER. Where a farm is in that area, according to the language of the bill here.

Mr. VALGREN. Well, it must be fair and just, not only as between two farms in a given area but as between given farms in different areas also.

Senator POPE. Under the language that you suggest, the idea that Mr. Frazier evidently has in mind would be considered. You would not only consider the history or record of the yield of this particular farm, but you would take into consideration perhaps the average yield of farms in that region?

Mr. VALGREN. Yes.

Senator FRAZIER. According to your statement it would be just on this particular farm, as I understood your reading.

Mr. VALGREN. No; I think not. I did not aim to change the method at all, as I think this was intended to imply, but simply attempted to make this state what I believe was intended.

Senator POPE. Well, what the Senator has in mind, evidently, is that you have taken out the language in lines 8 and 9 "average yields. fixed for farms in the same area".

Mr. VALGREN. Yes. I do not believe that that statement is broad enough to cover the principle that should be laid down.

Senator SCHWELLENBACH. Do you object to the principle of taking the farms in the area into consideration in fixing the rates?

Mr. VALGREN. No; they must be

Senator FRAZIER (interposing). Wouldn't you get at it better, than, by, instead of substituting as you have, adding another sentence in there, saying that in fixing the rates for the area they must be fair and just as compared with other areas?

Mr. VALGREN. I think it could be done that way, by adding another sentence. I simply feel that the present statement does not cover the situation completely. It compels the board to have it just as between two farms located in the same area with similar hazards. It says nothing about farms located in different areas.

Senator FRAZIER. For instance, out in the State of the Senator from Washington, the yield is 40 or 50 bushels to the acre, not an uncommon yield out there, but in the hard spring wheat areas the average is much less than it is out on the west coast, especially in the winter-wheat area. So what would be an average yield out in Washington would be twice as much as the average yield in North Dakota. Mr. VALGREN. Certainly.

Senator POPE. Would you take into consideration in fixing the average yield on a given farm not only the yields of the farms of like character in that community, but would you go out into other communities, as suggested by Senator Frazier, and take into consideration the yields of farms or the average yield in the other communities or other regions?

Mr. VALGREN. No; I would fix the coverage, the amount of insurance, as the percentage of the average yield of each given farm as nearly as that can be determined, but inasmuch as the records that we now have of average yields cover only 6 years, the appraisal arrived at by taking into consideration the yield only on that farm for a 6year period must in some cases be modified by the average yield for a broader area, as I understand the present bill intends.

Senator FRAZIER. I think we all agree with that statement.

Senator POPE. But now suppose that on a particulrar farm there have been several years in which it happened that you had tornadoes or hail, and the history of the yield on that particular farm would be very low. Because of these unusual hazards during that year, that series of years, it was our idea that we should not hold the man strictly to the average yield of the farm under those circumstances but would take into consideration the average yield for other farms in the community in order to fix an average or appraised yield for his particular farm. Isn't that your idea?

Mr. VALGREN. Yes, exactly. That is, I think that when such a case arises as you have just cited, Senator, then the board must make such adjustments as it may find necessary, in order that the appraised average yield fixed for each farm may fairly represent the probable future yield.

Senator POPE. And in making the adjustments you will take into consideration the average yield for farms in the same area?

Mr. VALGREN. Yes; I would.

Senator SCHWELLENBACH. But what relationship is there between the average yield in North Dakota and in the State of Washington?

Why is it necessary to take into consideration the yields in other parts of the country in order to be fair to this one man?

Mr. VALGREN. You would not, but in that area, the other area, you would proceed in exactly the same way as you did in the first area. Senator SCHWELLENBACH. But if you are fair to this man by taking into consideration the record of his own farm, making the adjustments on the basis of the records of the farms in the given area, isn't that as far as you need to go? If you try to match it up with some other part of the country, are you not just making an impossible situation?

Mr. VALGREN. Well, you do not match it up. I had no intention that you should match it up for the different parts of the country, but that you should proceed on exactly the same basis in each part of the country, and when you were all through, the appraised average yield for each farm that you had appraised should represent, as accurately as may be, the prospective future yield.

Senator FRAZIER. You cannot tell about the future yield nearly as well as you can about the past yield.

Mr. VALGREN. But you can guess at the prospective future yields only on the basis of the past record.

You

Senator SCHWELLENBACH. But you cannot guess on the future, so far as insurance is concerned, for a sound basis of insurance. cannot guess on the future; you have got to take the records of the past.

Mr. VALGREN. Yes; you have.

Senator POPE. I am satisfied that Mr. Valgren's idea, however, was our idea. Now, with reference to determining what the future yield will be, the only basis you have for that would be the past years, and not only with reference to this particular farm, but with reference to farms in that locality. I am convinced that that is true, and I think we should consider this language that Mr. Walgren has suggested in connection with this matter when it comes before the committee for any adjustment or amendment to the law.

Now, you might go down to lines 19 and 20. I presume it is about the same.

Mr. VALGREN. It is essentially a corresponding change that I would make there in order to bring out the intent and purpose of the plan on which the Department of Agriculture has been working in setting up prospective rates.

Senator POPE. Will you indicate the language that occurs to you?
Mr. VALGREN. Reading the whole sentence?

Senator POPE. Yes; you might read the whole sentence.
Mr. VALGREN (reading):

To fix premiums for such insurance, payable either in wheat or cash equivalent as of the due date thereof, on the basis of the recorded or appraised average crop loss of wheat on the insured farm for a representative base period, subject to such adjustment as the board may prescribe, to the end that the premium fixed for each insured farm in each area may be fair and just.

Senator FRAZIER. It does not make much difference about each area or the same area.

Senator POPE. Now, the language is "each insured farm in each area."

Mr. VALGREN. May be fair and just.

Senator POPE. The same considerations would apply to that amendment as to the one mentioned above.

Mr. VALGREN. Yes; as I understand it. I have no quarrel at all with the intent and purpose of the bill as written. It simply seems to me that it fell a little bit short in expressing the intent and purpose, and that the board could comply with this bill simply by saying that any two farms in the same area that have the same hazards shall have the same rate without also saying, as the board should do, that the rates fixed were just and fair as between two different farms in two different areas, subject to different hazards. The same relationship to past records must be preserved, and if the same plan of arriving at the rate is followed in the two areas it will be preserved.

Senator POPE. I think the suggestion made by Senator Schwellenbach, that another sentence might be inserted with reference to it, might be a good suggestion.

Mr. VALGREN. I think that would be one way of broadening the principle. That is the way in which I would be inclined to word it, but I do not question that there might be better ways of expressing it, Senator POPE. Now, go ahead with any other thought you have in mind in connection with the bill.

Mr. VALGREN. I am handicapped in not knowing what phases of the bill have been covered before, although that probably would not make any difference, if you want my personal views, on any of the problems involved, and I would like to have it appear in the record that anything that I say is merely my personal views and that I am not attempting to express the views of the Farm Credit Administration, by whom I happen to be employed at the present time.

Senator POPE. Mr. Valgren, you might indicate in a more general way the advantages that would come from such a plan as this.

Mr. VALGREN. I will be glad to attempt to do that, Senator. Under such a plan as is proposed in this bill, it would be possible for a farmer to proceed with his crop production, with the assurance that he would get substantial returns each year and that he would not be up against the possibility of having to work essentially the whole year without any returns and with the further possibility of being unable to meet his assumed obligations and probably lose the accumulations that he had already succeeded in making. A plan of this kind would, of course, be of particular importance and advantage to the new or beginning farmer who has not had time to accumulate any reserve or surplus that he can fall back upon in case of crop failure, and more especially in the case of farmers that rely largely or entirely on a single crop, namely, wheat, for their year's income. In fact, a farmer under those circumstances, where he has no accumulated surplus and where he risks all or a large part of his year's investment and labor on wheat alone, is forced under present circumstances to gamble, as I see it, and no man engaged in honest production should be forced to gamble.

Senator POPE. Are you familiar with the work that has been done by the Bureau of Agricultural Economics, looking toward arriving at a premium under such a bill as this? And if you are familiar with that you might tell us whether or not you think that the method of procedure that they have adopted and the calculations that they have made are sound and that they are on the way to arriving at a fairly good basis for premium payments.

Mr. VALGREN. Yes. I have been in fairly close touch with the men in the Department of Agriculture that have been working on this particular problem, and it is my belief that the plan that they have