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Tuesday, November 13, 2012

Federal Crop Insurance for Specialty Crops: Background and Legislative Proposals

Dennis A. Shields
Specialist in Agricultural Policy

The federal crop insurance program provides farmers with risk management tools to address crop yield and/or revenue losses on their farms. Farmers can purchase subsidized policies that pay an indemnity when their production or revenue falls below a guaranteed level.

Historically, the federal crop insurance program primarily has covered traditional farm program crops such as wheat, corn, and soybeans. However, the crop insurance program has expanded in recent decades, and policies are available now for a wide range of commodities, including specialty crops such as fruits and vegetables. In 2009, specialty crop policies covered more than 7 million acres, which was roughly one-half to three-quarters of specialty crop area, depending on how total area is calculated. In total, crop insurance is available for over 80 specialty crops, making the program the primary financial safety net for specialty crop producers.

The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.). The U.S. Department of Agriculture’s (USDA's) Risk Management Agency (RMA) operates the Federal Crop Insurance Corporation (FCIC), which is the funding mechanism for the program. Insurance policies are sold and completely serviced through approved private insurance companies. The insurance companies’ losses are reinsured by USDA, and their administrative and operating costs are reimbursed by the federal government.

Federal crop insurance policies for specialty crops (and other crops as well) are generally either yield-based or revenue-based. For most yield-based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer’s “normal” (historical) yield. Insurable causes of loss include drought, excess precipitation, hail, frost, freeze, fire (if due to natural causes), and insects and disease. Revenue-based policies protect against crop revenue loss resulting from declines in yield, price, or both. Nursery crop producers can be protected against loss of an “asset” due to weather damage (but not price loss). Also relevant for specialty crop producers is whole-farm insurance, which protects against losses in whole farm revenue rather than just for an individual crop. An endorsement is available in some areas for protecting against loss due to quarantine.

While additional policies have been introduced in the last 10 years, producers and some Members of Congress would like to enhance crop insurance for specialty crop producers. In the 112th Congress, several legislative proposals have been introduced. The Local Farms, Food, and Jobs Act of 2011 (H.R. 3286/S. 1773) would enhance whole farm insurance and insurance for organic crops. The Rural Economic Farm and Ranch Sustainability and Hunger (REFRESH) Act of 2011 (S. 1658 and H.R. 3111) would also enhance whole farm insurance. The Specialty Crop Insurance Act of 2011 (S. 1905) would support the development of new policies.

In the 112th Congress, specialty crop provisions in these and other proposals have been included in the Senate-passed farm bill (S. 3240) and the House committee-passed farm bill (H.R. 6083). The bills require USDA to conduct more research on higher coverage levels for whole farm revenue insurance and study insurance for food safety and contamination-related losses. A provision would revise the value of crop insurance for all organic crops to reflect prices of organic (not conventional) crops. For crops not insurable with crop insurance, additional coverage would become available under the existing Noninsured Crop Assistance Program (NAP). Finally, a provision in S. 3240 would subsidize the purchase of existing private-sector index-based weather insurance, which protects against specific weather events and not actual loss.

Date of Report: November 6, 2012
Number of Pages: 21
Order Number: R42813
Price: $29.95

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