April 25, 2003
The Honorable Dr. Jim Butler
Deputy Under Secretary
Farm and Foreign Agricultural Services
U.S. Department of Agriculture
1400 Independence Avenue, S.W.
Washington, D.C. 20250
Dear Dr. Butler:
When you spoke to the American Sheep Industry’s Board of Directors on February 7, you mentioned a potential opportunity for the U.S. sheep industry to become involved in USDA’s development of livestock insurance. We appreciate this opportunity and the assistance you have subsequently provided to us through the Risk Management Agency since February, as we have been reviewing federal crop insurance and how insurance products could benefit the sheep industry.
Through deliberations among our leadership, we have arrived at several priority areas that we believe will be most helpful to sheep producers nationwide. These priority areas are: price/market protection, yield-loss protection, whole farm/adjusted gross revenue loss protection, forage-loss protection and health and disease protection. As we know you are aware, developing products that will work in an effective manner for most producers in an industry as diverse as ours is a challenge. We recognize that some of the priority areas identified could be interrelated; however, we have tried to focus on those primary risk factors that can cause the most business distress more frequently and in most production environments.
Price/market protection As you are aware, a futures market contract for sheep or sheep products is not available. Ours is also a rather concentrated industry and this presents unique challenges in market reporting. Further, our borders are open to sheep meat from international trading partners so our consumer marketplace has varying quantities of varying types of imported sheep meat with changing price-points. These factors influence our markets in addition to the economic fundamentals that are always at play in our domestic industry. Indeed, producers have watched prices for lambs change 25% or more in just a few days with no feasible way to manage the risk other than to delay marketing and hope the price rebounds quickly.
We believe that the use of data provided through Mandatory Price Reporting could provide a vehicle for measuring benchmarks and trends that may form part of an insurance product for price/market protection for sheep.
Yield loss protection Many factors that are external to sound management and husbandry can contribute to the loss of lamb yields. Forage loss during critical physiological and metabolic periods of the sheep’s reproductive cycle for example can cause lambs to be lost inutero. Also, stress due to events like predator attacks and threats can cause fetal loss resulting in fewer lambs born, even though the ewe flock is not apparently harmed. Of course, restricted forage intake due to drought and low quality forage result in lowered animal weights. Though not all-inclusive, these are examples of lamb yield loss.
We believe that there is potential in developing an insurance product that involves protecting against loss of lamb yields. Again, production systems are highly variable regarding the timing of marketing lambs as well as the numbers and weights of lambs per-ewe marketed. However, historical values based upon production and marketing records could serve as values against which variations could be measured.
Whole farm/adjusted gross revenue loss protection Protecting the business on a broad scale is a very valid goal and we have reviewed the insurance product that is currently being offered in several northeastern States. It is our understanding that currently the coverage limit on this product would likely exclude many commercial-size sheep operations. We would be interested in further exploration of this approach for sheep, especially if the maximum coverage could be raised to accommodate more operations.
Forage loss protection Feed (forage) represents the highest single production cost factor in maintaining a foundation (ewe) flock. While our industry is highly diverse with ewe flocks being successfully grown in both intensive and extensive production systems, all are dependent on forages of some type. Seldom are weather patterns favorable for adequate forage growth in all parts of the United States during the same growing season, therefore, some geographical areas where sheep are produced have moderate to severe forage loss most years.
We recognize that measuring forage growth/loss due to major differences in climate, geology and forage species where sheep are produced in this country presents a challenge. Also, it is in the best interest of producers as well as that of the public-at-large to practice grazing management that is beneficial to our environment and prevents overgrazing. However, we believe that through historical and perhaps higher-tech measurements, methods for determining forage growth and yields can be achieved. If these methods can be used to develop insurance products to mitigate risks associated with forage loss, sheep producers could be in a position to protect themselves against their major input cost factor, while supporting sound grazing practices.
Health and disease loss protection Maintaining a healthy flock is a goal of every producer. However, even with the best management, disease conditions are ever-present. Outbreaks of some diseases might cause the loss of an entire flock, whereas some diseases are common endemic conditions that are manageable yet costly.
We have worked with USDA/APHIS/CEAH on disease issues facing our industry and are encouraged that health and disease are issues of interest to RMA. We understand how difficult it could be to construct insurance products covering specific diseases; diagnostics are far from perfect and new or emerging diseases can occur without initial definition.
We suggest that one way to begin to build a health/disease product is to measure simple mortality loss against historic flock records and/or a practicing Veterinarian’s statement of flock health.
We appreciate the opportunity to present these ideas to you and appreciate your interest in the sheep industry. We would also welcome the opportunity to work with USDA on the development of products that address the risk-management issues that economically affect our industry as listed above. Providing producers the ability to purchase various types of risk protection should help build strength and competitiveness in their business. That being said, we would not want to give the impression that the eventual availability of these tools should limit producers’ eligibility in the various other USDA programs, both permanent and temporary, that are or will be available. Please let us know what our next steps should be.
Guy Flora ASI President