How crop insurance might change in the new farm bill

2011-12-29T08:46:00Z 2011-12-29T09:04:18Z How crop insurance might change in the new farm billBy DALE HILDEBRANT Farm & Ranch Guide Farm and Ranch Guide
December 29, 2011 8:46 am  • 

FARGO, N.D. - In mid-September, Risk Management Agency (RMA) administrator Bill Murphy was in Fargo explaining the expected changes in the federal crop insurance program to those attending the Big Iron Farm Show. Now, less than two months later, he was back in Fargo speaking at the Farm Bill Conference and offering insights as to additional changes the program might see under the new farm legislation and also bring updated numbers on disaster losses paid out in 2011.

This year farmers paid over $11.5 billion in premiums to RMA, which is a record high amount, and as of the first part of November $4.6 billion had been paid out in claims meaning that for every dollar paid in premiums they have already paid out 39 cents in losses this year. That claims figure is expected to grow to about $11 billion once all of the loss figures are in, according to Murphy.

Corn, soybeans, wheat and cotton make up 75 percent of the entire crop insurance program, he noted. The biggest growth in the programs offered by RMA is in the area of revenue assurance programs.

"There's no doubt about it that revenue has been the big driver of the program in recent years," he said. "Probably the biggest pressure RMA is under right now is how do we expand revenue (programs) in specialty crops. There is a lot of interest from sugarbeet growers, dry bean growers and peas and lentils would like to see a program started.

"I would like to see more commodity growers get the same advantage the corn and bean guys get - where you can go into your banker and say, "come hell or high water, I am going to get this much money." That's pretty powerful and can make a strong case of getting your production loan for the year."

In an effort to expand crop insurance coverage, Murphy said they currently have 22 pilot programs taking place across the country.

"One thing we hope to have in the new farm bill is granting the RMA Board of Directors more flexibility as far as which programs will go forward and to be able to prioritize certain crops for development where we think there is a distinct need," he said. "We've got programs for about 85 percent of the acreage planted out there. That last remaining group of crops is rather large, but has limited acreage. If we go on a one-by-one basis, my grandchildren will have jobs with the program - it's going to take that long to develop them. Can we come up with a program that will cover a number of crops going forward ? that's another big issue facing the agency overall."

Murphy also noted that starting in 2012, for spring-seeded crops, RMA and the Farm Service Agency (FSA) will have the same July 15 reporting dates and eventually more of those reporting items will be combined to lessen the paperwork for farmers.

Rate study currently underway

During the past several months RMA has been conducting a rate study for corn after corn growers in the major producing states. The growers had encouraged the agency to review the insurance rates for corn. A rate study group has come back with a recommendation that the rates be based on a rolling 20-year rate window that would tie weather events historically into the catastrophic load.

Since Murphy's visit to Fargo, the RMA has announced the average insurance rate for corn will be lowered by 7 percent beginning in 2012, and the soybean rates will be reduced by 9 percent. Both rate reductions were the result of the independent study and peer review process that Murphy outlined at the Farm Bill Conference.

Trend yield adjustments will also be made for corn growers starting in 2012 and will take into consideration the advancement in corn technology.

"This has been a major issue on the part of corn growers. They have developed a program that we are going to be starting in 2012 and see how it works. If it does, we will eventually apply it to other crops as well," he said. "It's a way of taking an historic look at that crop, its yield trend over a 10-year period in a way of increasing yield."

Going into the farm bill

Murphy told the group the acceptance rate for crop insurance has been very good, and the concept is generally well understood not only in the agricultural sector, but in the urban areas as well and has widespread support as the next farm legislation is starting to be put together.

"It's a very unique private/public partnership," he said. "I think we get the efficiencies from both sides working the best in this program."

But he indicated there are some areas that need to be addressed as we move forward. One of those areas was touched on earlier, the need to insure all crops grown in the U.S. But there are other concerns as well, such as farmers with limited resources and in order to give better service to them RMA needs to have a little more flexibility in how they develop programs.

The coverage of shallow losses is another issue that needs to be addressed. This has been a big part of the farm bill discussion this year.

"Crop insurance only covers 75 percent of the loss, based on a 10-year average. So how do we, in a disaster year, cover that additional exposure?" he asked.

Other items such as big fluctuations in crop prices during the year; declining yields, where a producer has had two or three losses in his 10-year base that starts dragging his yield down as it decreases the rate of pay for a year of coverage and also makes for a difficult discussion with the banker; and finally, the issue of new and beginning farmers and how the RMA can make crop insurance affordable for them.

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