WASHINGTON, August 29 (TNSrep) — Congressional Research Service released the following focus white paper on the Farm Bill Primer – federal crop insurance program (No. IF12201) on August 26, 2022by agricultural policy specialist Stephanie Rosch.
Here are excerpts:
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The Federal Crop Insurance Program (FCIP) helps bring insurance coverage to farmers from private sector insurers to help mitigate the potential financial consequences of adverse growing and market conditions. of US Department of Agriculture (USDA) regulates the policies offered and subsidizes the premiums farmers pay to encourage farmer participation in the program. Premium subsidies covered about 62% of the total premium on average for all policies sold in 2021. Since its inception in 1938, FCIP has grown from a low-participation assistance program to a central pillar of federal farm support, with more than 444 million hectares and 150 billion dollars in the plant and livestock value provided in 2021 (Figure 1).
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Figure 1. Federally insured acreage and value
Crop Insurance Program, 2000-2021
Source: CRS using data from US Department of Agriculture (USDA) Risk Management Agency Business Summary database, downloaded August 19, 2022.
Notes: Values unadjusted for inflation. The years are harvest years.
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FCIP is permanently authorized under the Agricultural Regulation Act of 1938 (PL 75-430, 52 Stat. 72) and the Federal Crop Insurance Act of 1980 (PL 96-365, 7 USC Sec.Sec.1501 etc following), as amended. Title XI of the Agricultural Improvement Act of 2018 (Farm Bill 2018; PL 115-334) made minor modifications to the FCIP to expand coverage offerings and reduce program expenses.
FCIP provides insurance coverage for most agricultural crops, a wide variety of specialty crops, certain types of livestock and animal products, and rangeland. FCIP coverage is available for purchase in all US counties, although coverage for some crops may be limited to certain areas. Farmers can choose from many policy types and policy options to tailor coverage to the specific needs of their farming businesses. The amount of premium subsidy farmers receive depends on the coverage purchased. USDA fully subsidizes premiums for catastrophe-only (CAT) coverage; farmers only pay an administrative fee. Farmers pay an increasing portion of premiums for higher levels of coverage, up to a maximum of 62% of the total premium.
FCIP policies insure agricultural commodities against losses due to unavoidable natural events. Some policies also cover losses from seasonal decline in market prices. Covered perils or “causes of loss” include adverse weather conditions (eg hail, frost, drought, flood); failure of water supply for irrigation; fire; plant diseases; and damage from insects and wildlife. Farmers are forced to follow USDA’s guidance on good farm management practices in order to maintain coverage adequacy.
Authorized insurance companies, called Approved Insurance Providers (AIPs), sell and service FCIP policies. USDA regulates the policies offered and their prices. USDA also provides program delivery subsidies to AIPs to offset the cost of selling and servicing FCIP policies and reinsures a portion of policies sold under the terms of two annual agreements between USDA and AIPs: Standard Reinsurance Agreement (SRA) and Livestock Price Reinsurance Agreement (LPRA).
Program allocations and expenses
of Federal Crop Insurance Corporation – the agency that funds FCIP operations– is funded by mandatory appropriations of “such sums as may be necessary.” Average annual federal program expenditures 9.1 billion dollars for FY2012-FY2021, adjusting for inflation (Figure 2).
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Figure 2. Federal Crop Insurance Program Expenditures
Source: CRS using data from USDA, Federal Crop Insurance Corporation/Risk Management Agency Financial statements, audit reports, various fiscal years.
Notes: Adjusted for inflation using US Bureau of Economic Analysis Implied Price Deflators for Gross Domestic Product where 2021=100, updated July 28, 2022.
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Expenses tend to increase with the number of policies sold and as commodity prices increase. Between 2012 and 2021, premium subsidies for corn, soybeans, wheat, and cotton averaged 78% of all premium subsidies paid.
2018 farm bill changes
The crop insurance title in the 2018 farm bill was nearly budget neutral, with small increases and decreases in some provisions. Changes that were envisaged to increase budget expenditure included the authorization of CAT coverage for crops and pasture grasses; allowing separate coverage for crops that are mechanically grazed and harvested in the same season; redefining the term initial farmer or rancher for farm income protection policies as a whole; and waiving certain requirements for hemp coverage proposals submitted by the private sector. The changes that were envisaged to reduce budget expenditure included the increase in the administrative fee for CAT coverage; authorization of enterprise units in many counties; reducing funding for certain research and development contracts and partnerships; reducing funding for program review, compliance and integrity; as well as changes in how producer benefits are reduced when planting in domestic soda.
The 2018 farm bill also added hemp to the list of crops eligible for FCIP premium subsidies and post-harvest coverage; established a special crops coordinator; has changed the rules for the termination of cover crops; expanded the definition of underserved producers; and directed USDA to conduct research to develop FCIP coverage for priority items, among others. In response to the research priorities identified in the 2018 Farm Bill, USDA updated whole farm income protection policies and introduced coverage for hurricanes, quality losses, water conservation practices for irrigated rice production and micro farms.
Non-farm bill changes since 2018
Since 2018, USDA has used administrative authorities to make additional changes to the FCIP. Using the FCIP’s authority to approve coverage developed by the private sector (7 USC Sec.1508(h)), USDA introduced the Enhanced Coverage Option (ECO)—an acreage-based insurance policy that covers a portion of a farmer’s deductible that cannot otherwise be insured with FCIP coverage—and Post-Application Approval of Coverage (PACE) for farmers who apply
certain fertilizers in both autumn and spring. USDA used administrative authorities to make changes to grazing rules on land that was prevented from being planted during the growing season due to adverse weather and to increase the premium subsidies available for certain livestock policies. Prior to 2018, the Agricultural Hazard Protection Act of 2000 (PL 106-224, Sec.132) limited funds available for livestock premium subsidies. Section 60101(c) of the Bipartisan Budget Act of 2018 (PL 115-123) removed this limitation.
Except this, USDA made other changes to the FCIP in response to provisions from the annual and supplemental appropriations acts. USDA used funds provided by the Supplemental Disaster Relief Appropriations Act, 2019 (PL 116-20) to provide supplemental payments for insured acres that were prevented from being planted in 2019. USDA used funds appropriated by Congress in the Consolidated Appropriations Act, 2021 (PL 116-260) to establish the Pandemic Cover Crop Program (PCCP). PCCP offered up to 5 dollars per acre in additional premium subsidies for farmers who planted cover crops in 2021 and/or 2022.
Issues for Congress
FCIP is a central component of the federal farm safety net, a collection of programs that provide risk protection and financial support to farmers in times of low farm prices and natural disasters. In the last three farm bills, Congress has expanded FCIP to cover more goods and more types of risks. Although crop insurance market penetration for arable crops has historically been high, opportunities exist to expand participation, particularly for specialty crops, livestock and animal products.
Many stakeholders have proposed reducing the cost of the FCIP by capping underwriting profits for AIPs, reducing premium subsidies for manufacturers, introducing premium subsidy eligibility criteria based on the manufacturer’s adjusted gross income, among proposals others. In addition, the SRA has been in effect since 2011. In 2017, the Government Accountability Office recommended that Congress repeal section 11012 of the Farm Act of 2014 (PL 113-79)—which requires SRA renegotiations to be budget neutral—and that it directs USDA to renegotiate the SRA to achieve additional cost savings. Congress may consider whether the existing authorities and conditions of the SRA and LPRA are sufficient to achieve the desired cost control goals for the program.
Adoption of PACE and PCCP provide incentives within the FCIP for the use of conservation practices by farmers. Several environmental stakeholders have proposed increasing the role of FCIP in promoting conservation and improving soil health. Congress may consider the potential environmental benefits of these proposals and what their effects may be on the actuarial sustainability of the program.
The number of private sector insurers participating in the FCIP has decreased over time, largely due to consolidation in the insurance industry. Congress may choose to examine the factors driving this consolidation, as well as any implications of consolidation on the reach of producers in underserved areas and on insurers’ willingness to market new types of crop insurance coverage.
For additional background, see the following CRS reports:
* CRS Report R46686, Federal Crop Insurance: At the beginning
* CRS Report R46874, Federal Crop Insurance Program (FCIP): Replanting, Delayed Planting, and Prevented Planting
* CRS Report R45291, Federal Crop Insurance: Delivery subsidies in short
* CRS in focus IF11919, Federal Crop Insurance for hemp crops
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The white paper is posted at: https://crsreports.congress.gov/product/pdf/IF/IF12201