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∆ Contact Dr. Daryll E. Ray or Dr. Harwood D. Schaffer at the UTʼs Agricultural Policy Analysis Center by calling (865) 974-7407,faxing (865) 974-7298, or emailing dray@utk.edu or hdschaffer@utk.edu For more info, visit: www.agpolicy.org


Will Savings And Logic Be Enough To Carry The Day With Congress?


Employees (NASCOE) that the re- sponsibilities for the selling and serv- icing of crop insurance policies be shifted away from insurance compa- nies and into Farm Service Agency (FSA) county offices and the response of the American Association of Crop Insurers (AACI) to that proposal. Using the results of a study they funded, NASCOE contends that such a move would save the US government as much as $1.9 to $2.5 billion a year. Over the last several decades, it has


I


become fashionable to outsource or privatize essential public functions previously carried out by government employees. Those in favor of out- sourcing assert either that private en- terprise can carry out the activities more effectively, or that they can do it cheaper, or both. It is not difficult to understand why


those in the private sector make this argument; the resulting contracts are lucrative and they provide a steady source of income that is not subject to the usual ups and downs of the mar- ketplace. The case for privatizing government


functions is also made by those who want to shrink the size of government. What is unclear is how outsourcing achieves this goal in those situations where the cost of the program remains the same or increases – all that changes is who writes the paychecks and supervises the employees. The size of the government’s budget re- mains the same or gets even larger. In some ways, the NASCOE


proposal provides an opportu- nity to revisit the question of the advisability of uncritically outsourcing essential govern- ment functions to private en- terprise. It seems clear that the con-


tention that outsourcing saves the government money does not come into play when it comes to crop insurance. According to NASCOE’s In- forma study, having the pri- vate sector sell and service the federal crop insurance program costs money – as much as $2.5 billion a year. Even if it costs a bundle to in- stall the management sys- tems


and train FSA


employees to handle the fed- eral crop insurance program, over a ten year period the sav- ings have to be significant. On the other hand, ACCI refer- ences a 1989 Arthur Ander- son study that


reports


n the last two columns we have ex- amined the proposal of the National Association of FSA County Office


government costs to be higher than private industry. If having the private sector operate


the crop insurance program may or may not save the government money, then the case for not shifting the re- sponsibility for the program to the FSA rests on the argument that the crop insurance industry provides su- perior service. And that is one of the arguments they make, asserting that farmers prefer the services provided by private industry over government employees. They also cite a USDA Risk Management Agency study that shows an error rate in insurance pay- ments of just 5 percent. NASCOE counters with the argument that be- cause FSA relies on local farmer com- mittees, abuses of the program are easier for them to spot. One of the arguments that ACCI


makes is that NASCOE is just trying to protect FSA jobs. That being said, it is no less true that ACCI is trying to protect a stable revenue stream for crop insurance companies, insurance agents, and their employees. It is a given that both sides are trying to pro- tect their jobs so that argument seems to be a wash, favoring neither party. ACCI also argues that since they


have already taken a $12 billion cut in federal funds over a ten year period, they should be left alone. Certainly this argument can be made if Con- gress pushes for additional cuts, but is less relevant as a defense against switching the operation of the crop in- surance program to the FSA. While ACCI makes the case that shifting the program to the private


sector has


i n c r e a s e d farmer partic- ipation in the program, it is clear


that


other factors are at work as well. Certainly one of the rel- evant factors is the inadequacy of the levels of both the loan rate and the target price as set by Congress. In the absence of ad- equate support prices, bankers have been loathe to provide loans to farm- ers who cannot show some certainty in their ability to repay the loans. Crop insurance provides that cer- tainly, well at least in years of high crop prices. Another factor behind the increased


Research Assistant Professor at APAC, University of Tennessee


DR. HARWOOD D. SCHAFFER


participation in crop insurance is un- doubtedly the unpredictability of the ad hoc disaster program. Given the size of the potential sav-


ings and the lack of an unquestion- ably superior argument on the part of ACCI, it would seem reasonable to ex- pect Congress to give the NASCOE proposal a close examination. So far the most widely reported congres- sional response has been “dead on ar- rival.”


∆ DR. DARYLL E. RAY: Blasingame


Chair of Excellence in Agricultural Pol- icy, Institute of Agriculture, University of Tennessee DR. HARWOOD D. SCHAFFER: Re-


search Assistant Professor at APAC, University of Tennessee


ASA Cheers Upcoming Implementation Of Korea Free Trade Agreement


dent Barack Obama and the administration for completing its review of the free trade agreement between the U.S. and South Korea, which will take effect on March 15. On that date, nearly two- thirds of U.S. agricultural exports to Korea will be- come duty-free, including U.S. soybeans for crush- ing and U.S. soybean meal. Additionally, U.S. food-grade soybean pro-


T


he American Soybean Association


ST. LOUIS, MO. (ASA)


congratulates Presi-


ducers will have access to the South Korean market for the first time outside of the import monopoly cre- ated by the Korean State Trading Enterprise. The implementation of


the


agreement will also trigger the gradual elimination of tariffs on refined soybean oil over five years, and the elimination of tariffs on crude soybean oil over 10 years. “This free trade agree-


ment creates landmark opportunities for soy- beans and other U.S. agri- cultural exports, including


meat and poultry,” said ASA President Steve Well- man, a soybean farmer from Syracuse, Neb. “Trade agreements that significantly improve ac- cess to foreign markets for these products are a main focus of ASA’s efforts in Washington, and we ap- preciate the efforts of the administration, the Office of the U.S. Trade Repre- sentative, and USDA in seeing the free trade agreement with South Korea


enacted next month.” CONTINUED ON PAGE 6


DR. DARYLL E. RAY Agricultural Economist University of Tennessee


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