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Agricultural Disaster Assistance: Potential Impact on Kansas and Nebraska

Bradley D. Lubben and G. Art Barnaby [1]

University of Nebraska-Lincoln and Kansas State University

Revised July 17, 2006

Summary Points  Agricultural disaster assistance legislation for crop losses in 2005, for livestock losses in 2005 and 2006, and for on-going economic losses  is included in the 2007 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act current sitting in the Senate. The legislation includes several proposed disaster assistance programs and economic assistance programs which may affect producers in Kansas and Nebraska.

•                      The impact of major proposed programs highlighted in the study could be significant for Kansas and Nebraska producers. In total, Kansas could expect to receive approximately $201 million in payments from the six major programs while Nebraska could expect to receive approximately $183 million in payments from the same programs.

•                      The Crop Disaster Program would provide assistance to crop producers for losses suffered on the 2005 crop. The program would cover quantity and quality losses below a 65-percent loss threshold at 50 percent of the relevant price for insured acres or 35% for un-insured acres. The analysis suggests Kansas producers would receive over $50 million in crop disaster payments while Nebraska producers would receive almost $31 million.

•                      The Livestock Compensation Program would provide direct payments to beef, dairy, sheep, and goat producers in qualifying counties at a rate equal to 75 percent of the rate used in the 2002 Livestock Compensation Program. Through the program, Kansas producers and Nebraska producers could both expect about $44 million in payments.

•                      The Ewe Lamb Replacement and Retention Program would target $13 million to U.S. sheep producers through per head payments for ewe lambs purchased or retained in 2006. Based on the analysis, Kansas producers could receive $112 thousand in payments while Nebraska producers could receive $218 thousand in payments.

•                      The Supplemental Economic Loss Payments Program would provide payments to producers who received Direct Payments for the 2005 crop year at a rate of 30 percent of the original formula. Based on program information, Kansas producers would receive $102 million in supplemental payments and Nebraska producers would receive $103 million in supplemental payments. Additional supplemental payments to eligible recipients of Milk Income Loss Contract payments in 2005 could amount to $1.3 million for Kansas producers an $1.2 million for Nebraska producers.

•                      A program to provide grants to states for the support of the specialty crop and livestock (non-program commodity) industry would commit $100 million nationwide. Under the program, Kansas could receive $3.5 million in grants while Nebraska could receive $4.1 million in grants.

Disaster Assistance Legislation

The Agriculture, Food and Drug Administration, and Related Agencies Appropriations Act, 2007 was reported out of the Senate Appropriations Committee with proposed agricultural disaster assistance included. The proposed assistance is similar, but not exactly the same as the portion of the proposed agricultural disaster assistance that was eliminated in June during Conference Committee work on the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006. While language related to agricultural disaster assistance in hurricane-affected regions was kept in that bill, other proposed assistance with an estimated $3.5 billion cost was deleted. The current proposed legislation was introduced as an amendment to the agricultural appropriations bill with an estimated cost of $4.2 billion, higher due to some proposed changes and additions in the package and also due to an increase in the number of counties in which producers would be eligible for some of the assistance. Throughout the proposed assistance package, there are several programs that could substantially benefit Kansas and Nebraska producers facing production and economic losses in 2005 and thus far in 2006. A brief description of the agricultural disaster assistance language in the Senate agricultural appropriations bill as it impacts Kansas and Nebraska producers follows below:

The Crop Disaster Assistance section (Sec. 811) would provide assistance to crop producers for quantity and/or quality losses on the 2005 crop caused by damaging weather or related conditions. Losses below a threshold level of 65 percent would be covered at a rate equal to 50 percent of the established price. The established price for insurable crops is the price established by USDA-RMA for crop insurance policies under APH coverage (formerly known as MPCI coverage). The relevant price for non-insurable crops is established from market price information from USDA-NASS. For producers who did not purchase insurance on insurable crops or sign up for the non-insured assistance program on non-insurable crops, the payment rate would be 35 percent of the established price. The proposed legislation does not include a cap on the total combined proceeds of crop revenue, net crop insurance indemnities, and any disaster payments. While such a cap has been used in recent disaster assistance programs, it is not in the current legislation. Additional crop disaster assistance may come in the provisions of the Sugarcane and Sugar Beet Disaster Assistance (Sec. 814). The proposed legislation would appropriate $24 million for sugar beet producers suffering production losses in quantity or quality. The assistance would work in the same manner as that earlier provided for the 2001 and 2002 sugar beet crop.

Livestock producers would receive assistance under several programs (Sec. 812), including a Livestock Compensation Program, livestock indemnity payments, and a Ewe Lamb Replacement and Retention Payment Program. The Livestock Compensation Program would provide fixed per head payments to producers of beef cattle, dairy cattle, sheep, and goats in qualifying counties. The rate would be 75 percent of the rate used in the 2002 Livestock Compensation Program. The Ewe Lamb Replacement and Retention Payment Program would make payments to producers of qualifying ewe lambs retained or purchased during the calendar year of 2006. A total of $13 million would be authorized for this program, so a per head rate is not specifically set. For reference, the payment rate used in the program when offered in 2004 was $18 per head, subject to funding availability.

The legislation would also provide supplemental economic loss payments (Sec. 822) based on 30 percent of the Direct Payment formula for producers participating in the Direct Payment and Counter-Cyclical Payment Program for the 2005 crop year. In addition, producers qualifying for Milk Income Loss Contract payments during calendar year 2005 would also receive supplemental economic loss payments based on a nationwide total of $147 million in funding to be prorated out to eligible producers. This proposed assistance for dairy producers is an addition in the current agricultural disaster assistance package relative to the original proposal that was eliminated back in June. Its inclusion now broadens the number and scope of producers that would be eligible for the supplemental economic loss payments.

Another addition to the current disaster assistance package is the funding of $100 million for replenishment of Section 32 funding in the Commodity Credit Corporation (Sec. 821). This provides for the Secretary of Agriculture to use CCC funds to make grants to states for the support of producers of specialty crops and livestock. The language explicitly excludes the program commodities of wheat, feed grains, oilseeds, cotton, rice, peanuts, and milk from the formula. Essentially, this proposal targets assistance to the sector of agriculture not touched by the other supplemental economic assistance proposed in Section 822.

An economic analysis of the proposed crop disaster assistance (including the sugar beet assistance), the livestock compensation program, the ewe lamb replacement and retention program, and the supplemental economic loss payments follows below.

Crop Disaster Assistance

The proposed Crop Disaster Program would pay producer for losses on the 2005 crop below a 65-percent loss threshold at a rate equal to 50 percent or 35 percent of the established price based on whether the producer did or did not sign-up for the non-insured disaster assistance program. While an exact calculation of eligible losses on all acres is not possible, we can analyze indemnity payments on the 2005 crop under existing crop insurance programs from USDA’s Risk Management Agency. Tables 1 and 2 summarize these calculations for Kansas and Nebraska for selected crops for which insurance indemnity information is available.

By adjusting the crop insurance indemnity payments to the standard 65-percent loss threshold and then adjusting the payment rate, one can estimate what crop disaster payments would be per insured acre and non-insured acre (Table 1). Expanding the estimated crop disaster payment per acre to the total insured and non-insured acres of each crop provides an estimate of total crop disaster payments by crop for each state (Table 2)

This summary suggests that the proposed crop disaster assistance could amount to approximately $50 million for Kansas crop producers and $31 million for Nebraska crop producers. However, this number should be considered a partial estimate. Not all potential qualifying crops are included in the available statistics, thus a loss estimate could not be calculated. In particular, information on forage acres and forage losses is not available for Kansas and could add substantially to the total. Also, these statistics are calculated as potential payments available before any limitations. The numbers are slightly smaller than the estimates for potential assistance under the original proposed provisions ($53 million for Kansas and $33 million for Nebraska) due to the lower payment rate now proposed for non-insured acres.

There are certain limitations that could affect eligibility for the crop disaster assistance program. To be eligible for the assistance, individuals are subject to the $2.5 million adjusted gross income limitation as established in the Farm Security and Rural Investment Act of 2002. The limit requires an individual to have an average adjusted gross income of $2.5 million or less unless at least 75 percent of the adjusted gross income is from agricultural activities. Also, the legislation calls for implementation of the proposed program in the same manner as the 2000 Crop Disaster Program. That program included a limit of $80,000 in assistance per individual.

Livestock Compensation Program

The proposed Livestock Compensation Program would provide producers assistance through a direct, fixed payment per head of qualifying beef cattle, dairy cattle, sheep, and goats. The legislation calls for USDA to utilize the 2002 Livestock Compensation Program mechanics to provide compensation for qualifying losses during the 2005-2006 period. The proposed legislation does make a major change in the program by modifying the eligibility guidelines such that all counties declared a disaster county by Presidential designation or Secretary of Agriculture designation and all contiguous counties would be eligible for the program. In 2002, only primary disaster counties were eligible.

The following maps highlight current counties in Kansas and Nebraska that meet the primary or contiguous county guidelines at present. Only a small number of counties in either state (4 in Kansas, 25 in Nebraska) are currently ineligible based on information as of July 17, although some counties could yet be added if subsequent disasters or disaster designations occur that meet the definition of losses during 2006. By contrast, all counties in both states were eligible for the 2002 Livestock Compensation Program based on the primary disaster designation that existed for all counties in both states at the time.

Estimating potential benefits under the proposed Livestock Compensation Program requires several calculations and estimates. While statistics on payments under the 2002 program are available, several factors would change for the program covering the 2005-2006 period. First, the payment rates would change under the proposed legislation to 75 percent of the rate used in the 2002 Livestock Compensation Program. Thus, the rate for adult beef cattle would change from $18 per head to $13.50 per head and for qualifying heifers, steers, and bulls, from $13.50 per head to $10.13 per head. For dairy cattle, the rate would change from $31.50 per head to $23.63 per head. For all sheep and goats, the rate would change from $4.50 per head to $3.38 per head.

Second, exact information on livestock inventories that would be eligible for the program is not readily available. Limited data exists on historical livestock inventories by county and current livestock numbers by state, but current numbers in eligible counties are unavailable. In addition, certain livestock are eligible depending on where the base of the operation is, not on where the livestock are physically located. Certain livestock are ineligible for compensation, including cattle owned by packers or commercial feedlot operations. Certain individuals are also ineligible, based on payment eligibility guidelines. The 2002 program included a $40,000 individual payment limit and an eligibility limit of $2.5 million of gross revenue. Any individual with more than $2.5 million in gross revenue would be ineligible for assistance. It is important to note that this is substantially different than the crop disaster assistance, which based eligibility on $2.5 million of adjusted gross income. The $2.5 million gross revenue cap is more constraining and could limit the number of livestock producers actually eligible for assistance.

 A straight-forward analysis of 2002 livestock inventories and program payments and 2006 livestock inventories offers the best method to estimate potential Livestock Compensation Program payments under the proposed legislation. Table 3 summarizes the relevant inventory data from January 1 of 2002 and 2006, the actual payments from 2002, and the estimated payments for 2005-2006.

The data suggest total Livestock Compensation Program payments would be approximately $44 million in Kansas and $44 million in Nebraska. The larger reduction in estimated payments relative to the 2002 program for Nebraska is primarily due to the reduced number of counties that are currently eligible. Only 68 of 93 counties in Nebraska currently meet the eligibility guidelines. Those 68 counties have approximately 86 percent of the livestock, leaving about 19 percent of total livestock inventory ineligible for assistance. In Kansas, only 4 of 105 counties do not meet the current guidelines, thus only about 3 percent of livestock inventories would be ineligible. Of note, since the original analysis, Cherry County in Nebraska has been designated a disaster county, increasing the number of eligible counties by one. However, Cherry County is the largest beef cow county in Nebraska and the addition of Cherry County alone increased the estimated percentage of eligible livestock from 81 to over 85 percent. That resulted in increased estimated payments of $2.3 million to Nebraska livestock producers. Until such time as the assistance package is passed, additional counties could become eligible, adding to the estimated payments in both states.

Ewe Lamb Replacement and Retention Program

The proposed Ewe Lamb Replacement and Retention Program would appropriate $13 million to make payments to producers for each qualifying ewe lamb retained or purchased during the 2006 calendar year. The program would be carried out under the guidelines of the 2004 program, which made payments to producers of $18 per head, subject to funding availability. While the proposed qualifying period is still open, we can analyze the potential payments based on January 1, 2005 inventory numbers and 2005 reported replacements and make adjustments for 2006 based on January 1, 2006 numbers. The relevant data follows below in Table 4.

Table 4. Sheep and Lamb Inventories and Estimated Ewe Lamb Replacement and Retention Program Payments.*

*              Sheep and lamb inventory and replacement numbers from USDA-NASS.

The total appropriation of $13 million nationwide is down from the $15 million original proposal. The estimated payment rate, based on an estimated 780,603 replacement ewes nationwide is $16.65 per head. While the ewe lamb program is a small program relative to the proposed Crop Disaster Program and the proposed Livestock Compensation Program, the program would provide estimated benefits of $111 thousand to Kansas producers and $218 thousand to Nebraska producers.
Supplemental Economic Loss Payments

The proposed Supplemental Economic Loss Payments would be paid to producers who receive Direct Payments for the 2005 crop year under the commodity program provisions of the Farm Security and Rural Investment Act of 2005. The proposed legislation would calculate payments based on 30 percent of the formula for direct payments. Thus, the proposed supplemental payments would equal the Direct and Counter-cyclical program crop acreage base multiplied by the Direct Payment program crop yield multiplied by the Direct Payment rate multiplied by 85 percent multiplied by 30 percent.

Of note, the direct payments are limited to $40,000 per individual. Since the supplemental payments are calculated based on 30 percent of the formula and not 30 percent of the actual payment, the supplemental payments are not actually limited to $12,000 (30 percent of $40,000). However, the number of individuals for which the supplemental payment would actually exceed $12,000 would be the same as the number of producers for which the $40,000 limit is constraining. Some calculations from previous years suggest the number so affected would be small, generally less than 5 percent of producers.

Based on Direct and Counter-cyclical Program enrollment information from the original program sign-up under the 2002 Act, we can calculate the estimated direct payments and thus the estimated supplemental economic loss payments for both Kansas and Nebraska. There could be minor shifts in enrolled acreage over time that would affect the total payments, but the original enrollment numbers provide a solid estimate. The calculations are shown in Table 5.

Based on the available enrollment information and the proposed payment rates, the supplemental economic loss payments would be approximately $102 million to Kansas producers and $103 million to Nebraska producers. While not explicitly included in the legislation, producers receiving benefits through this program would also be subject to the $2.5 million adjusted gross income. Eligibility for these payments would be contingent on receiving 2005-crop Direct Payments. Since the $2.5 adjusted gross income cap applies for that program, it effectively applies to this proposed program as well.

The current agricultural disaster assistance proposal also includes supplemental economic loss payments for dairy producers. A total of $147 million would be authorized for payments to producers that were eligible to receive a Milk Income Loss Contract (MILC) payment in calendar year 2005. While specific data for 2005 is not readily available, total potential payments can be estimated by analyzing MILC payment data for calendar year 2003 as a proxy. That information and the resulting estimated payments are shown in Table 6.

The data show a little over $1 million in supplemental payments to each state’s dairy producers, using 2003 payment data as a proxy for estimating each state’s share of national payments and prorating the $147 million appropriation for the supplemental economic loss payment program.

Specialty Crop and Livestock Programs

The proposed agricultural disaster assistance package also expands the targeted commodity sector beyond just the traditional program commodities. A separate section authorizes $100 million for the replenishment of Section 32 funds of the Commodity Credit Corporation, freeing up like funding for programs targeted at the specialty crop and livestock sector. The assistance in this section would be in the form of grants to states to fund various activities supporting agriculture, including supplementing state food bank programs or other nutrition assistance programs; promoting the purchase, sale, or consumption of agricultural products; providing economic assistance to agricultural producers, giving a priority to the support of specialty crops and livestock; and funding other relevant programs.

The grants to states under this program would be based on two parts. First, $25 million would be allocated to grants of $500,000 per state. Second, a total of $74.5 million would be distributed through a formula based on each state’s share of the total value of national specialty crop and livestock production in 2004. The relevant information farm income data from USDA-ERS is summarized to estimate the state grants as shown in Table 7.

Based on available data, estimated grants would be approximately $3.5 million to Kansas and $4.2 million to Nebraska. While the legislation spells out the formula for distributing this money to states, it provides only the mentioned guidelines for how the money is to be spent. Thus, estimating the potential impact on producers is limited to simply calculating the value of the grants. If the various state programs provide effective assistance or market promotion and development, the potential impact to producers could in fact be greater than the grant amount shown.