Scrutinizing Crop Insurance


By Chris Clayton DTN Ag Policy Editor

DES MOINES (DTN) — Crop insurance was considered a protected area of the 2014 farm bill with direct payments targeted as the program requiring cuts.

Now that direct payments are gone, crop insurance has moved into the line of fire for possible budget cuts in 2015. That concerns Mary Kay Thatcher, a lobbyist for the American Farm Bureau Federation.

“I think the Republicans are going to want to do a budget for the first time ever — not ever, but certainly in the last few years,” Thatcher said at the Iowa Farm Bureau meeting earlier this week.

Congressional committees in both chambers overseeing the federal budget and appropriations will be searching for places to make program cuts. Crop insurance right now accounts for roughly 45{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} of the funding for farmers.

Crop insurance is facing growing scrutiny already. The Government Accountability Office has released two studies just in the last three months focusing on different aspects of crop insurance, including ways to reduce the federal premium subsidy.

“I feel like the bludgeoning is being done and the groundwork is being laid,” Thatcher said.

Some farmers are concerned about the concentration of crop insurance payments among the largest farm operations. Tom Nuessmeier, a farmer from Le Sueur, Minn., is a member of the farm-policy committee for the Land Stewardship Project, which has been releasing a series of white papers on crop insurance. The reports have highlighted the federal costs of crop insurance, its effects in putting more marginal ground into production and the profitability of the industry.

“This is something we as farmers use, but there are some corrections that need to be made,” said Nuessmeier, who raises corn, soybeans, small grains and also has a hog farrow-to-finish operation.

Before the Land Stewardship Project began, Nuessmeier said he didn't realize how much of the crop insurance premium is subsidized. He and others encouraged the group's analysts to examine crop insurance because of greater concerns about rising land values that favored large operators. Revenue insurance has taken some of the risk out of farming, which Neussmeier said has allowed some farmers to keep expanding at the expense of young and beginning farmers trying to compete for ground. Unlike commodity programs or conservation, there are no caps on crop insurance subsidies or means testing.

“I think it's time for us to take a look at that if we want to have a valuable program,” Nuessmeier said.

The Obama administration has proposed cutting the percentage of premium subsidy every year since the president took office. Last year, the White House proposed cutting the rate of return to insurance companies from 14{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} to 12{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086}, as well as capping administrative and operating reimbursements to $900 million a year. The White House also proposed cutting premium subsidies for some policies by 3{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} and cutting other policies up to 7{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086}.

“I have no reason to believe USDA or the president would be backing off on that,” Thatcher said.

Congress restricted USDA's ability to negotiate budget cuts through reinsurance agreements with companies. In the farm bill, lawmakers effectively established that such cuts are the purview of Congress and not USDA. Insurers might actually seek increases in administrative and operating expense reimbursements from USDA because some of the companies have lost money in years since USDA renegotiated the standard reinsurance agreement with insurers back in 2011.

Crop insurance not only did not take cuts in the farm bill, but was expanded through new supplemental programs and pilot programs for specific crops.

Don Villwock, president of Indiana Farm Bureau, said insurance is kind of a lightning rod, especially with projected indemnities when there is a record national yield.

“They are going to be looking at us and putting us under a microscope,” said Villwock. “We're going to have to do our job to remind them it's just not yield insurance, but revenue insurance.”

It's a tough sell to explain the importance of crop insurance to congressmen outside the agriculture committees. Fewer lawmakers may realize that farmers gave up a $5.2-billion-a-year direct payment program in the farm bill.

“The farm bill deal was that we were going to step away from these price guarantees or payments and that your safety net would be crop insurance. At least in the Midwest, where crop insurance tends to work better than it does for some southern states; we all signed on to that deal. Now, they are wanting to attack or lower the safety net closer to the ground. We are starting to question that,” Villwock said.

Besides groups such as the Land Stewardship Project, there are conservative detractors such as Heritage Action that lobbied aggressively for more farm-program cuts in the last farm bill. House Ag Committee leadership has already said the committee plans to aggressively review the Supplemental Nutrition Assistance Program. Yet, lawmakers and farmers would draw heat if proposals come out to cut SNAP without some cuts to farm programs. “The minute you make any kind of changes to the SNAP program, somebody is going to come out — more than one somebody is going to come out — and say what's good for food stamps is good for agriculture, too,” Thatcher said.

Given the dollar figures spent on crop insurance, groups such as the Land Stewardship Project and others in conservation would like to see incentives in crop insurance for soil-health measures such as minimum or no-till practices.

The GAO issued a report in September looking at the increased costs of crop insurance and possible ways to reduce those costs. The GAO noted the cost of crop insurance averaged $3.4 billion a year from 2003 to 2007. The program costs then rose to average $8.4 billion a year from 2008 to 2012.

Over the decade from 2003 to 2012, the total program costs for crop insurance reached $58.7 billion. Of that, premium subsidies cost $42.1 billion. Taxpayers covered about 62{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} of the premium costs for an average insurance policy in 2012.

Total premiums in 2013 reached a record $11.5 billion with $7 billion in premium subsidies on a record 116.5 million acres, according to the Risk Management Agency. Those costs and covered acres came down with lower prices in 2014. Total premium for the 2014 crop was nearly $9.8 billion with a premium subsidy of $5.9 billion on 102.8 million insured acres.

“Because the budget has gone up so significantly for crop insurance, I think it's going to be a target,” Thatcher said.

The GAO concluded in its report that the federal government would have saved $1.76 billion in 2012 if it had cut the premium subsidy 20 percentage points. That would have reduced the average premium subsidy from 62{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} to 42{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086}. Had that been the case, the GAO stated premium difference would have added $11.24 per acre to production costs for the average corn farmer.

Those premium cost increases represent a limited increase in the average production costs per acre for corn farmers, usually less than 3{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086} and often less than 1{28d451f77a4de8a52cd2586be6cc1800527fe70ea84e8b3f90098495d088e086}, the GAO stated.

“I guarantee that's not the last time we see those figures,” Thatcher said.

CLICK HERE for September GAO report on crop insurance premium subsidies

CLICK HERE for Land Stewardship Project papers on crop insurance.




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Posted by Jami Howell

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