Dennis A. Shields Specialist in Agricultural Policy
part of the ongoing farm bill debate, Congress continues to review the
effectiveness and operations of the federal crop insurance program as part
of the farm safety net. This report describes the current federal crop
insurance program as background for crop insurance provisions in House and
Senate versions of the farm bill proposed in the 112th Congress (see CRS Report R42759, Farm Safety Net
Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083).
The federal crop insurance program began in 1938 when Congress authorized the
Federal Crop Insurance Corporation. The current program, which is
administered by the U.S. Department of Agriculture’s Risk Management
Agency (RMA), provides producers with risk management tools to address
crop yield and/or revenue losses on their farms. In purchasing a policy, a
producer growing an insurable crop selects a level of coverage and pays a
portion of the premium—or none of it in the case of catastrophic coverage—which
increases as the level of coverage rises. The federal government pays the
rest of the premium (62%, on average, in 2012). Insurance policies are
sold and completely serviced through 15 approved private insurance companies.
The insurance companies’ losses are reinsured by USDA, and their
administrative and operating costs are reimbursed by the federal
government (i.e., farmers do not pay delivery costs).
In 2012, federal crop insurance policies covered 282 million acres. Major crops
are covered in most counties where they are grown. Four crops—corn,
cotton, soybeans, and wheat—accounted for nearly three-quarters of total
acres enrolled in crop insurance. Most crop insurance policies are either
yield-based or revenue-based. For yield-based policies, a producer can receive
an indemnity if there is a yield loss relative to the farmer’s “normal”
(historical) yield. Revenuebased policies protect against crop revenue
loss resulting from declines in yield, price, or both. Other insurance
products protect against losses in whole farm revenue (rather than just for an individual
crop) or gross margins for livestock enterprises.
Government costs for crop insurance have increased substantially in recent
years. After ranging between $2.1 and $3.9 billion during FY2000-FY2007,
costs rose to $7 billion in FY2009 as higher policy premiums from rising
crop prices drove up premium subsidies to farmers and expense
reimbursements (which are based on total premiums) to private insurance
companies. Costs rose further to $11.3 billion in FY2011 and $14.1 billion
in FY2012 when crop prices surged again and poor weather resulted in
Reimbursements and risk-sharing between USDA and private insurance companies
are spelled out in a Standard Reinsurance Agreement (SRA), which plays a
large role in determining program costs. In 2010, USDA renegotiated the
SRA for the 2011 reinsurance year (which began July 1, 2010) to save money
and make adjustments to improve program delivery.
In the coming years, outlays for crop insurance are expected to exceed
commodity programs, making crop insurance a potential target for deficit
reduction. Insurance companies, farm groups, and some Members of Congress
are concerned that additional reductions in federal support will negatively
impact the financial health of the industry and possibly jeopardize the
delivery of crop insurance to farmers. A main goal is saving federal
dollars without adversely affecting farmer participation, policy coverage,
or industry interest in selling and servicing insurance products to farmers.
From a farm policy standpoint, policymakers and observers alike remain
concerned about how the crop insurance program interacts with farm
commodity programs and whether together they provide a means for helping
farmers deal with business risk at a cost that is acceptable to taxpayers.
Date of Report: December 6, 2012
Number of Pages: 25 Order Number: R40532 Price: $29.95
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