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Crop insurance in next farm bill

As policy proposals for the next farm bill are floated, a frequent topic of discussion is crop insurance.

Looking to pinch pennies in a tight economy and still provide farmers with a needed backstop, several prominent farm-state politicians have recently suggested all manner of crop insurance changes — some calling for overhauls, others for minor changes.

In response, the crop insurance industry has warned against major tinkering. In late May, Southeast Farm Press spoke with Mid-South-based insurance agents — William Cole of Batesville, Miss., and Kirk Erickson of Yazoo City, Miss., — and Tom Sell, a crop insurance lobbyist and business partner with former Texas Rep. Larry Combest. Sell works with the Crop Insurance Professionals Association (CIPA), of which Cole and Erickson are members. Among their comments:

On the 2008 farm bill’s treatment of crop insurance…

Sell: “In the 2008 farm bill, crop insurance kind of became the bank. The budget is a major constraint on agriculture policy. Crop insurance ended up getting about a 12 percent cut in what’s called the A&O (administrative operating expenses). There were other cuts within the programs — like raising CAT (catastrophic insurance) fees.

“In all, about $6.5 billion (over 10 years) was cut and that helped make the farm bill go.” Those cuts to crop insurance “helped pay for programs like ACRE and SURE. And a lot of farm bill money goes to the nutrition title and the conservation title.

“So, that’s the first thing to know about crop insurance: There was a 12 percent cut to the A&O. Since the farm bill was written, general expenses in crop insurance have come down by about 35 percent — the combined effect of the 12 percent cut plus market moderation.

“SURE is supposedly a disaster program that would solve all problems. But it’s extraordinarily complicated. Just now, the FSA is trying to get out payments for the 2008 crop year. At the same time, crop insurance has already paid out over $121 million in claims for 2009 in Mississippi alone.”

On current coverage buy-ups/purchases by farmers and the importance of producing pristine documents for SURE…

Cole: “It’s often lost in the farm bill debate that we’ve got guys taking crop insurance levels that are among the highest we’ve seen. Growers are getting (coverage) who haven’t even had a CAT policy before.

“As agents, we’ve done a good job putting the risk management tools before the growers. They’re taking those tools and covering themselves.

“The SURE program calculations are going on right now. We’re seeing extremely punitive penalties for not reporting information that matches up with FSA.

“For example, we have a farmer in Tennessee who stands to get a $200,000 SURE payment. But he’ll be denied the entire payment because he missed a 90-acre field on his 2008 acreage report. There’s no way to go back and correct that two years later.

“We won’t have any farmers in this area that elect to take the ACRE program. That’s because they’d have to give up a percentage of their direct payment money.”

Kirk: Regarding ACRE, “there are a couple of things that get in our way here. We grow multiple crops — cotton, rice, corn and beans — while in Kansas, where ACRE may work, they grow wheat.

“The SURE program has already been a challenge for Mid-South growers. And that’s before you even consider they don’t get a payment due to the lag year. They run into obstacles with FSA data not matching up exactly with their operations.”

More on crop insurance participation and buy-ups…

Cole: “I’ve got higher levels of participation and buy-up coverage than we’ve ever had.

“That’s especially true with rice growers. We used to never see rice with anything but a CAT policy. But with the additional subsidy on enterprise units that’s exploded in the last few years.”

On Congress’ attempt to “replicate” crop insurance…

Sell: “I’ve dealt in Washington, D.C., for a long time and seen a lot of legislation. I love the FSA and FSA programs and will defend them.

“But I think what happened in the 2008 farm bill is they were trying to replicate what crop insurance does. So, with ACRE they were trying to replicate what was going on with revenue policies on crop insurance. That was an imperfect solution because FSA doesn’t have the manpower.

“SURE, in the same way, was an attempt to build on top of crop insurance. But with crop insurance there’s a great infrastructure of companies that are competitive and business-minded. And they know, for the sake of their businesses, they’ve got to get things out the door. It’s a very different mindset.

“With SURE, FSA — which didn’t have the needed manpower and computing power — tried to train local staff on very intricate details of how certain programs would interrelate with crop insurance and the other farm programs. It all kind of gelled into a big mess and it still is.

“I’ve been led to the conclusion, particularly as the next farm bill debate begins, that we should let crop insurance do what it’s good at. Then, simplify some of the farm programs and head for some of the systemic risk rather than try and recreate the wheel.”

Cole: “There’s no competition here. Agents are really working with FSA trying to help them work through anything we can to make the data match up. It’s been a team effort trying to get this to work.”

Minnesota Rep. Collin Peterson, chairman of the House Agriculture Committee, says he wants crop insurance to cover all crops. One way he suggested doing it was to eliminate CAT coverage and the Non-Insured Crop Assistance Program and have a county-level trigger. Where do you stand on those ideas?

Cole: “I think it would completely devastate our Southern farmers. The different crops and areas we have — low-lying ground to higher ground — you’ll have different yields for different crops. Most likely, you’d end up right at the threshold where you lose money, but won’t ever get a crop insurance claim.

“Whatever comes out, we’ve got to keep something that is either crop-based or unit-based. This ‘whole farm’ idea would be pretty devastating to this area.”

Kirk: “I agree. The ‘whole farm’ unit would drag in all your crops. You’d have to sustain a loss on all crops to get a payment.

“Well, in the Midwest, they might have only two crops: corn and beans. We have four to six on farms, here.”

Cole: “You could have a bumper rice crop and a horrible cotton or soybean crop and still not have a claim.”

Any good that could come out of a county-level trigger?

Sell: “Well, it wouldn’t work as well for a big county as it would for a small county. There are all kinds of unfairness there.

“Ronnie Holt, CIPA chairman (who testified at the recent farm bill hearing in Lubbock, Texas, said it really well: Anytime you deal with a county average, half of the people will be below the average and half will be atop it. If you’re just triggering payments based on what the county did, that means half could be underpaid and half overpaid.

“Crop insurance has had county-level programs like GRIP. Basically, it says if a county’s production and revenue is down by 10 percent, you get paid. If you’re really wanting to hedge risk on the farm, that probably isn’t the best way. It’s more of a gamble.

“It’s one thing to do that with a private crop insurance contract where the producer is paying. If he wants to gamble that way, fine. But when you’re talking about doing that in the farm program, you know from the outset that half the county will be overpaid and half underpaid. That puts it in a different perspective.”

On banker preferences…

Cole: “Another point is the bankers specifically want to know what a farmer’s coverage is for a crop, down to the acre, before he loans $1 million or $1.5 million. When you say, ‘well, if the county hits a certain threshold,’ that doesn’t provide the banker any assurance the farmer can repay the crop loan.

“And given the current economy, it’s as difficult as I can ever remember to get a crop loan.”

Kirk: “The 2009 crop went south quickly. After last year, bankers here really understand crop insurance. They’re staunch supporters of crop insurance — and will continue to be — after the 2009 season.

“Maybe a GRIP policy would have paid off, maybe not. But the bankers want to deal with certainties and guarantees and not possibilities.”

Typical questions you’re getting from farmers?

Cole: “They want to know what their coverage will be in a particular county, what their premium will be, and what is required in maintaining and upkeep of the policy. Of course, with higher levels of coverage, it requires a lot more attention to detail with getting yields and acreage accurate.

“The SURE program adds another element. We help them match data with the FSA’s.”

Kirk: “Their questions are predicated on what the bankers are requiring for loans. The bankers want to make sure that if something crazy happens again — a recurrence of 2009 — they’ll be protected.”

Things you want to see happen in the next farm bill?

Sell: “Fundamentally, first do no harm to crop insurance. It’s the only tailored risk-protection tool that farmers have. It doesn’t come encumbered with all the things traditional farm programs have — payment limitations, etc.

“Second, make an effort to bolster crop insurance while taking care of some of the problems. That would allow more farmers to have greater access to higher levels of coverage.

“In the Midwest the great bulk of farmers buy 75 percent to 85 percent revenue products for their farms. That’s a great level of risk protection. Why can’t that option be available to farmers in all areas of the country?

“Also, there are things like APH (actual production history) that determines how much a producer can insure. What does he expect to produce? There are some things that need to be done (with that).

“Lastly, CIPA has been engaged in trying to improve some of the policies — for rice, particularly. Even with what (Cole) has seen in buy-ups in the last couple of years, rice still lags way behind other major field crops like corn, beans, cotton and wheat. CIPA has tried to improve policies for rice growers.

“We’ve always had a farm program and that needs to continue whether it takes the form of fixed payments or counter-cyclical programs of some type. We need that but let’s not try to get too fancy and harm crop insurance in an effort to shove the two together.”

Cole: “Since the major overhaul of 2000, things have been working. No major tinkering needs to be done. Some minor tweaks would improve the program but we definitely don’t need to rework the whole program.”


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