Crop insurance keeps bulls’ eye

Bills already introduced to scale back crop insurance support although House Agriculture Committee committed to protecting farm safety net.

Crop insurance was cemented as the cornerstone risk management tool for farmers during the 2014 Farm Bill and already attempts have been made to pare down government support for the program.

In 2014, farmers spent nearly $3.8 billion to purchase more than 1.2 million crop insurance policies protecting 128 different crops. Almost 90% of planted cropland was protected by crop insurance last year.

The president’s latest budget proposal slashes $16 billion from crop insurance – a reduction of over 17%. In a House Agriculture Committee hearing questioning Secretary of Agriculture Tom Vilsack, many of the leaders strongly defended the crop insurance program and said they’d fight off any cut attempts.

And Congressional members again heat up attempts to save money on the backs of crop insurance. Sens. Jeff Flake (R-Az.), Rep. John J. Duncan, Jr. (R-Tenn.), and Sen. Jeanne Shaheen (D-N.C.) introduced the bipartisan, bicameral Harvest Price Subsidy Prohibition Act. The Harvest Price Subsidy Prohibition Act would save taxpayers $19 billion by ending the Harvest Price Option (HPO).

In 2012, a year that saw corn and soybean prices increase 32% and 23% from planting to harvest, HPOs increased payouts to farmers of both crops by a total of $6 billion. In a year where crop insurance payouts topped $16 billion, the $6 billion in taxpayer losses due to HPO policies was an “egregious and unnecessary misuse of tax dollars,” supporters of the bill say. Supporters also said the premium subsidies are some of the “lowest-hanging fruit” in the federal budget and the time has come to eliminate the premium subsidies entirely.

In a joint statement from the major crop insurance industry groups, they explained the HPO protection is a vital tool that enables farmers to participate in forward contract.

“Unfortunately, harvest price protection has become the latest target of opponents of production agriculture and the farm safety net,” the joint statement said. “Their critique cherry picks higher-than-normal indemnities following a one-in-a-lifetime drought, and it shows a true lack of understanding of crop insurance, the positive reforms made to policy over the years, and the risks faced every day by America’s farmers and ranchers.”

On Tuesday February 3, Sen. Jeanne Shaheen (D-N.H.) and Sen. Pat Toomey (R-Penn.) introduced legislation to cap crop insurance subsidies at $50,000 per entity.

According to the Congressional Budget Office, this payment limit would save the federal government $2.2 billion over 10 years while impacting only 2.5% of producers.

House Ag stands firm

House Agriculture Committee chairman Michael Conaway (R-Texas) came out swinging in his questioning of Vilsack at a House Agriculture Committee hearing on Feb. 11, taking issue with Vilsack’s previous statements that he thinks insurance companies’ returns are too healthy. He said he’s actually hearing insurance providers looking to exit the business, rather than more people trying to jump in on a cushy government-backed business.

Vilsack said he recognized the importance of crop insurance as over $55 billion has been paid out to farmers since he became secretary six years ago. However, he said it’s a “balance between producers, insurance providers and taxpayers.”

Vilsack noted the week prior in a media call that with the government subsidizing between 60% and 80% of certain crop insurance policies, “there’s probably some tweaking that can be done.” He did identify it’s also important though not to jeopardize the attractiveness of crop insurance.

Vilsack added USDA’s own inspector general has raised questions and concerns on whether preventative planting provisions create a disincentive for planting a second crop and also in terms of the harvest price loss protection if the split should be more of a 50/50 split rather than the 65/35 partnership that currently exists.

The President’s budget first change would reduce the premium subsidy by 10% for purchases of buy-up coverage to the harvest price option. When a farmer purchases crop insurance they can choose to use the projected price or they can buy-up to the harvest price option for an additional premium. Because the harvest price coverage is more attractive and because it is very highly subsidized, most farmers elect it. The proposed change is projected to save $14.6 billion over 10 years.

The second proposed change would alter prevented planting coverage by eliminating the option to buy-up prevented planting coverage to 65 or 70% of the coverage level elected by the farmer. This proposal would also require that a 60% transitional yield be applied to the producer’s Actual Production History (APH) when they receive a prevented planting payment. Currently, if a farmer does not plant, and takes a full prevented planting payment, their APH is not impacted.

"If they replant then the replanting is incorporated into their APH which serves as a disincentive to replanting," supporters of the change explain.

Currently the prevented planting protection has been mandatory in the provisions since 1994. As the provisions read, the farmer is paid 60% of the current liability. As a corn farmer with a 150 bu. APH, 75% of coverage level with a price of $4.00 has $270 of prevented planting protection. USDA added options that allow the farmer to increase the 60% default for prevented planting by 5% or 10%. These additional options are proposed to be discussed as part of the President's budget.  

Because Congress only takes up the farm bill every five years, there would be no chance for these reform proposals to see the light of day in FY 2016. However, it is possible that in the coming months Congress will pursue budget reconciliation – a process that instructs certain authorizing committees to make policy changes to reduce the deficit. If the Agriculture Committees were to be instructed to make spending cuts, crop insurance reform would certainly be on the table in FY 2016.

Ferd Hoefner, policy director at the National Sustainable Agriculture Coalition, said, “farm bill spending cuts could potentially be on the table should Congress adopt a budget reconciliation process later this year that includes agriculture.”

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