Government Funding Debate Keeps Farm Bill and STAX in Limbo

As the farm bill debate takes a back seat to political wrangling over government funding and (soon) action on the debt ceiling, the cotton industry continues to wait regarding the fate of the Stacked Income Protection Plan, or STAX.

STAX is the foundation of the cotton program contained in both of the proposed House and Senate versions of the new Farm Bill. It’s a completely new concept for the industry – a revenue-based insurance program that looks at changes in revenue at a county level based on loss in yield, loss in price or a combination of the two.

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“Roughly 70 percent of cotton acres insured today are covered by revenue products,” said Gary Adams, vice president of economics and policy analysis for the National Cotton Council. “STAX is based on county experience, not individual experience, and is designed to complement a producer’s current insurance. Growers will not need buy-up insurance in order to purchase STAX. It could be a stand-alone policy.”

So, how does STAX work?

  • The product is designed to cover revenue losses not covered by existing insurance.
  • It complements existing coverage, or could act as a stand-alone purchase.
  • It triggers on the county experience, not individual experience.
  • It will be administered by USDA’s Risk Management Agency.
  • Premiums will be calculated to be actuarially sound and to adjust by coverage level, amount of liability and underlying risk.
  • As currently proposed, the STAX premium offset by the government is 80 percent. Growers pay 20 percent.

“Ideally, a producer would look at STAX as an option to enhance their risk management,” said Adams. “Currently, they could be purchasing individual insurance that, in most cases, brings them to a 65-to-70 percent level of coverage. At its maximum, STAX covers the range of 70 to 90 percent.

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“Think about it as if there’s a 10 percent deductible. If county income falls below some expected level by 10 percent, that’s when indemnities kick in under STAX.”

The Senate and House versions of the proposed legislation each contain other individual provisions and amendments on items ranging from an income means test for crop insurance products to possible transition payments to growers for the STAX program. Those items will be up for debate and compromise when the joint House and Senate conference convenes to work through and mark up the final legislation for vote.

Timing, however, is anyone’s guess.

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