RMA Administrator Ross J. Davidson Jr.'s Opening Remarks at the Declining Yields Pre-Proposal Conference

RMA ADMINISTRATOR ROSS J. DAVIDSON JR'S
Opening Remarks at the Declining Yields Pre-Proposal Conference
May 7, 2004

Thank you, Chairman Moran. RMA appreciates your continued support and we look forward to working with you and other members of the Subcommittee in finding reliable risk management tools for our nation's farmers.

Thank you, attendees, for showing interest in submitting proposals, recognizing the importance of this issue and working with RMA in undertaking this initiative.

Thank you, RMA staff, for making this orientation day possible and for your continued dedication to agricultural producers.

At this time, I"d like to take a moment and read a brief statement by Dr. Keith Collins, Chairman of the Federal Crop Insurance Corporation Board of Directors, on behalf of the Board.

"The Board of Directors of the Federal Crop Insurance Corporation congratulates the Risk Management Agency for organizing this pre-proposal conference to address the issue of declining yields caused by successive years of crop losses. The Board also thanks Congressman Moran for his strong leadership in helping to improve the nation's crop insurance program as demonstrated by his participation in today's conference. Multiyear crop losses can create a problem that ought to be solved. Yet, the problem is complex. When a producer faces successive years of crop losses, the producer's Actual Production History-or APH-will decline. As the APH declines, the producer's coverage level declines and premiums rise. If the reduced APH does not truly reflect the actual yield distribution of the producer, then the producer is being unfairly penalized by the string of crop losses. However, if the reduced APH does truly reflect the long-term risks of production for that producer, then any artificial adjustments to raise the APH may result in over-insurance and may not be actuarially sound. This pre-conference gives RMA a wonderful opportunity to elicit the best possible and most creative proposals for dealing with this complex issue of multiyear crop losses. We thank everyone for participating." - Keith Collins, Chairman, Board of Directors, Federal Crop Insurance Corporation

This Administration is committed to doing what's right for America's farmers, especially in terms of crop insurance. More farmers are realizing the importance of crop insurance as part of their farm management plans and utilizing it as much as possible.

A record level of U.S. crops-almost 80 percent of eligible acreage-is now insured, providing about $4 billion in payments for production lost during 2002 due to drought and natural disaster; in 2003, it was approximately $3.2 billion.

The Federal crop insurance program provides protection for some 358-commodity varieties, through approximately 1.3 million active policies, insuring about 217 million acres.

I agree with Chairman Moran. Crop insurance is working, but continued enhancements need to be made to accommodate modern agricultural practices and situations, especially for those farmers with multi-year crop losses.

As part of Secretary Veneman's risk management initiative, the Department is committed to providing a safe, and effective delivery system, improving service to our nation's farmers, simplifying current crop insurance products, and developing better risk management tools.

In developing better risk management tools, Secretary Veneman specifically asked RMA to address concerns with coverage in regions that face multi-year droughts.

I have conducted listening sessions throughout the country to meet with farmers and hear their concerns and suggestions about the crop insurance program.

They expressed the desire for better, informed customer service; simplified, cost-efficient products; and, in drought-stricken areas, a solution to multi-year crop loss protection.

Farmers who experience multi-year crop losses have felt the adverse affects on their actual production history (APH). Most Federal crop insurance products use APH in calculating indemnity payments.

RMA realizes this affects the majority of policyholders and recognizes the need for appropriate and timely insurance products to combat the affects of multi-year crop loss on APH.

Today, RMA is taking another step forward in an attempt to find ways that will help farmers mitigate the effects losses have on their insurance coverage. RMA is soliciting proposals to develop cost effective and innovative solutions for new or revised methods for mitigating declines in an insured's approved yields that are consistent with standards of actuarial soundness, fraud prevention and responsiveness to farmers" needs.

This pre-proposal conference is designed to assist all interested parties to better understand RMA's objectives in soliciting proposals. During this conference, RMA will provide information on:

The background and availability of current methods for yield limitations;
An overview and background leading to the request for proposals; an
An opportunity for interaction with RMA staff to allow bidders to ask questions and seek clarifications about alternative methods for mitigating declines in approved yields due to successive years of low yields.

RMA is accepting proposals through June 30, 2004, after which each proposal will go through a technical evaluation of its merits.

RMA and the FCIC Board of Directors have the ultimate responsibility for making appropriate changes and improvements to the Federal crop insurance program.

We are responsible for providing effective, cost-efficient coverage, while finding a balance between actuarial soundness, program integrity, and market responsiveness.

Our nation's agricultural producers need help in protecting them against impacts caused by a magnitude of crop losses.

RMA looks forward to working with the Department, Congress and industry representatives in finding appropriate solutions to providing coverage for multi-year crop losses.

At this time we will take a break. Those participating and wanting more information in this conference will return or remain in this room. The Chairman and I will be happy to entertain press questions beginning at 9:45 upstairs in room 159. For members of the press on the phone, please do not hang up. We"ll be with you momentarily. Thank you very much for your interest.