Call to Order and Roll Call
The1st meeting of the Subcommittee on Rural Issues of the Interim Joint Committee on Agriculture was held on Wednesday, October 10, 2012, at 10:00 AM, in Room 129 of the Capitol Annex. Senator Vernie McGaha, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Vernie McGaha, Co-Chair; Representative Mike Denham, Co-Chair; Senators Joe Bowen, David Givens, Paul Hornback, Jim DeCesare, C.B. Embry Jr., Kim King, Tom McKee, Terry Mills, Bart Rowland, and Tommy Turner.
Guests: Brian Kiser and Dana Case, Commonwealth Office of Broadband Outreach and Development; Dr. Greg Halich and Dr. Cory Walters, University of Kentucky, Department of Agricultural Economics.
Broadband service to rural Kentucky
Senator McGaha welcomed Mr. Brian Kiser, Executive Director, and Ms. Dana Case, Program Administrator, Commonwealth Broadband Outreach and Development (CBOD). Mr. Kiser stated that all states struggle with the access, availability, and awareness of broadband. Adoption is the area in which most states struggle. About 91.5 percent of Kentucky households have access to broadband, and 58 percent have chosen to adopt it. Kentucky needs affordable broadband throughout the state as there are 400,000 citizens without access.
Mr. Kiser testified that Kentuckians have options, but in most cases those options are inadequate. For example, phone line broadband is too slow, and 3G cell service is expensive, restrictive, and has poor signal quality. Satellite broadband is expensive and restrictive. Rural areas struggle with high cost and expensive installation costs, and families of low income and poverty levels cannot afford the high service or installation cost. There is no perceived value in adopting broadband.
In response to a question, Mr. Kiser explained that broadband is defined as 768 kilowatts per Federal Communications Commission (FCC) guidelines. CBOD meets monthly with ConnectKentucky, an organization created several years ago with similar intent, to prevent duplication.
Mr. Kiser responded to a question regarding wireless telecommunication, stating that CBOD has a contract with three major carriers. While it is not likely that wire will be laid in rural areas, it has been suggested that reverse marketing be implemented to rollout in rural areas and then report its performance.
In response to a comment regarding poor and impoverished areas, Mr. Kiser responded that there are no grants available, but CBOD works with groups such as Community Action to provide donated items to families in rural areas.
Mr. Kiser stated that, just as small satellite filled the gap for rural television, new broadband technology can fill the gap for rural areas in fixed wireless and satellite broadband. Therefore, Kentucky’s needs include affordable broadband and increased adoption. The benefits of broadband availability include: education for students and the workforce; greater opportunities for those of low income as well as students with disabilities; distance learning; aiding Kentuckians in becoming globally competitive; attracting future businesses; eHealth; public safety; and governmental services.
Livestock Risk Protection Program
Dr. Greg Halich, University of Kentucky Department of Agricultural Economics, explained Livestock Risk Protection Program (LRP) basics. The most useful tool for Kentucky producers is the United States Department of Agriculture (USDA) Program, which gives the downside to price risk protection similar to futures markets in the Chicago Mercantile Exchange (CME) based on the CME feeder cattle index and offers multiple coverage areas. The change in CME feeder cattle index is used to determine the payment.
Dr. Halich noted advantages of LRP being the 13 percent subsidy, which makes it cheaper than a put option. There is no commission, and coverage is available for cattle of any weight, sex, and type. Protection is offered for any number of head with no minimum requirement. The disadvantages of LRP are that the coverage levels depend on options trades, and it is less flexible than the CME option as far as selling cattle early. The inability to sell a policy back, and the fact that LRP can only be exercised at expiration, is problematic. There is a lack of program information available to most farmers and most farmers are not aware the program exists.
Dr. Halich reported that most livestock farmers are too small to use the tools of CME. Hedging other opportunities such as selling directly to feedlots or directly to an order buyer could increase potential in Kentucky. Few Kentucky livestock farmers use these tools because of the size of their operations.
Dr. Halich addressed the rainfall index (RI), which is a USDA insurance program based solely on rainfall in a grid area. It is designed for cattle and hay operations, however; the pilot program is not available in Kentucky. The RI chooses 70 to 90 percent rainfall coverage and establishes a per acre income value. The RI can be adjusted from 60 to 150 percent on an individual basis. The Non-Insured Crop Disaster Assistance Program (NAP) can be used for hay, although it is not thought to be good coverage, and few farmers use it. Adjusted Gross Revenue – Lite (AGR-L) whole farm revenue insurance, which is not available in Kentucky, insures 65 to 80 percent of average five year revenues. It is only available in Tennessee, Illinois, Virginia, and West Virginia.
Dr. Halich stated that LRP is the best option for most cattle farmers, while the coverage for grain farmers is not comparable.
Discussion on Crop Insurance Programs
Dr. Cory Walters, University of Kentucky Department of Agricultural Economics, testified that crop insurance premiums increased from $1 billion in 1994 to over $11 billion in 2011, while insured acres increased from 100 million to 265 million. Statistics for the state showed 2.9 million acres insured, $1.5 billion in liabilities, $14 million in premiums, $92 million in subsidies, $33 million in indemnities, and the loss ratio equals an indemnity premium of 32 cents for 2012.
In response to a question, Dr. Walters responded that 80 percent or more of the state’s row crops are insured. Farmers’ premiums are more than enough to cover last year’s losses, but that will not be the case this year. There have been monitoring problems with tobacco insurance.
Dr. Walters explained that there is no ad hoc assistance available for corn producers who missed the March 15 deadline to purchase insurance.
Dr. Walters explained that crop insurance contract decisions are made before the sales closing date and listed coverage level, unit type, and insurance type as the three primary decisions for crop insurance. Group Risk Income Protection (GRIP) for a producer provides two choices of coverage and protection levels.
Dr. Walters explained premium subsidies. Subsidy is applied as a percentage of premiums under most policies. Premium is a functionality of pricing. Subsidy money goes up or down based upon pricing.
Dr. Walters explained the role that the Department of Agricultural Economics will play as it estimates indemnities to see whether polices would have been available and purchased, take the lead on making missing products available to Kentucky stakeholders, and educate stakeholders about risks involved. In addition to funding for the study, the department will need to evaluate potential partnerships. There is a need for a political push to bring to Kentucky those programs that are being offered in other states.
There being no further business, the meeting was adjourned.