- The Washington Times - Sunday, March 14, 2004

DOVER, Del. - The avian flu virus that forced the destruction of their chicken flock cost Sussex County farmers Horace and Bonnie Maloney about $40,000 in lost income and left Perdue Farms, for which they raised chickens, with a costly cleanup.

Mountaire Farms also faces an expensive cleanup after avian flu struck one of its growers in Maryland, forcing the slaughter of more than 300,000 chickens.

Perdue and Mountaire are expected to recover some of the costs from an industry indemnity fund that will be tapped for the first time this year because of the avian flu outbreak.

But individual poultry growers such as the Maloneys have few insurance options and little way to recover lost income when birds are lost to disaster or disease.

Although grateful for the $4,500 check that Perdue voluntarily gave him after he lost more than 70,000 birds, Mr. Maloney thinks that the industry needs to find a way to protect growers, not just the large processing companies that own the birds and hire contractors to raise them.

“Without the grower, you have no company,” he said. “At this time, there’s been no fund set up to pay the growers.”

Unfortunately for Mr. Maloney, for the Mountaire contractor in Pocomoke City, Md., and for an independent grower in Kent County who lost 12,000 birds after being hit with avian flu, no such fund exists.

The two livestock insurance programs offered by the U.S. Department of Agriculture apply only to cattle and swine.

“We don’t have any fowl insurance at all,” said Shirley Pugh, a spokeswoman for the USDA’s Risk Management Agency.

That could change, but it’s not certain that contract poultry growers would see any relief.

The USDA recently hired a Montana risk-management consulting firm to conduct a feasibility study of a federally subsidized livestock insurance program, similar to federal crop insurance.

After learning of a possible pilot program in Alabama, Georgia and Maryland, officials with the Delmarva Poultry Industry Inc. (DPI), an industry trade group, persuaded federal officials to include Delaware and Virginia. Meetings have been held in Delaware and the other states to assess grower concerns, and the consulting firm Watts and Associates is scheduled to deliver a preliminary report to the USDA by October.

“It’s not guaranteed when we start a feasibility study that this will go on to be a program,” warned Miss Pugh, who indicated the program might benefit the companies that own chickens more than the growers.

“You have to have an ownership share in anything that we would insure,” she said.

Assuming that the ownership question can be resolved, grower interest in the program is likely to hinge on premium costs and types of coverage that might be offered.

“The consensus from our guys is that they wanted some sort of income-protection insurance that would provide protection for anything except bad management on the farm,” said Bill Satterfield, executive director of the DPI. Such coverage could include losses because of disease, delayed flock placements because of quarantines or market conditions, poor-quality chicks and weather.

Last year, Virginia lawmakers approved $1.5 million in indemnification funds to contract poultry growers for downtime they faced after an avian flu outbreak in 2002 in the Shenandoah Valley. That was in addition to millions of dollars in a one-time appropriation by Congress to compensate growers and companies for direct losses.

Delaware and Maryland poultry farmers have shown little interest in a USDA whole-farm insurance program that is based on adjusted gross revenue (AGR) and restricts livestock protection to 35 percent of the total revenue guarantee. Industry officials say the insurance would be of little use to the many farmers who make most of their money raising poultry.

A variation of the AGR program, based on a Pennsylvania Department of Agriculture model and recently made available in 11 other states, has no limitations on livestock revenue but has generated little interest, even though it includes premium subsidies. Mr. Satterfield said the sign-up period for the program ended in January, shortly after informational sessions were held in Delaware and Maryland.

“There seemed to be about zero interest among poultry growers. I think they didn’t understand it, and they had to make a decision in about 10 days,” Mr. Satterfield said. “It was basically a crop program, and they kind of slapped chickens on board at the last minute and tried to sell it.”

Meanwhile, the avian flu outbreak has become the first test of landmark agreements between the poultry industry and agriculture officials in Delaware and Maryland to protect against catastrophic losses.

Under the agreements, approved in Delaware in 1993 and in Maryland in 1995, a poultry company must absorb the first $100,000 in losses from an event such as a disease outbreak. Those losses include the value of birds that have to destroyed, the cost of killing and disposing of the birds, and the cleanup of poultry houses.

If a company documents costs of more than $100,000 to the DPI, it can turn to a $2.5 million indemnity pool funded by the four major poultry processors on the Delmarva Peninsula. After the amount exceeding $100,000 is calculated, each of the four companies is billed a share of the remaining costs, based on its percentage of the region’s chicken production.

“We have never used the fund,” Mr. Satterfield said. “This will be a first.”

Mr. Satterfield said the agreements have worked as intended, allowing Perdue and Mountaire to respond rapidly without having to worry about the costs.

If a disease outbreak in Maryland or Delaware becomes so bad that the $2.5 million industry indemnity pool is expended, a poultry company can turn to the respective state governments, each of which has pledged up to $5 million to cover additional costs.

“If the five million is exceeded then, brother, we’ve got a problem,” Mr. Satterfield said.

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