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Crop insurance likely a key component of new farm bill

"When we talk to folks in Washington, it seems to be their message  that crop insurance is going to be the part of the commodity title that is most likely going to be maintained and not touched, while direct payments is the part that is most likely going to be most at risk in terms of continuation in the future,” says Keith Coble, professor of agricultural economics at Mississippi State University.

As discussions move forward on the 2012 farm bill, crop insurance is expected to be a major component of the legislation that is developed, says Keith Coble, professor of agricultural economics at Mississippi State University.

And, he says, farm programs continue becoming increasingly complex.

“I don’t think we hear as much about crop insurance in this part of the country as in the Midwest, the Plains, or other areas,” he said in a panel discussion at the Mississippi Farm Bureau Federation’s annual commodity conference.

“But when we talk to folks in Washington, that seems to be their message — that crop insurance is going to be the part of the commodity title that is most likely going to be maintained and not touched, while direct payments is the part that is most likely going to be most at risk in terms of continuation in the future.”

Coble, who has many years of experience in farm policy and programs, says “Our region is in something of a unique situation in the coming farm policy debate, in that one of the big issues is going to be: Do we have a common program, or do we let different commodity groups go their own way?

“In the debate last fall, there wasn’t time to coalesce on one plan, but a lot of attention was given to different plans for different commodities.

“Almost every day, we read that, across the country, commodity groups are saying their No. 1 priority is crop insurance, that their No. 1 priority is a safety net.”

That suggests, Coble says, that Mississippi Farm Bureau to “was wise, more than a year ago, to sit down and start talking about risk management programs and crop insurance, and how to address those issues in this region.

“Crop insurance is different than our traditional countercyclical payments and other programs in that it is delivered through a private sector group. A lot of people are talking about commodity programs in terms of, do we want shallow loss or deep loss programs, but I think another part of this question is going to be, who delivers? And that’s not a very popular topic.”

With crop insurance, Coble says, “There are premiums to be paid and rates to be set, and there are a lot of nuances as to how this is done. I would suggest that everyone needs to become more attuned to these issues and more educated on them, so they can effectively communicate with those who are writing the programs.

“I would suggest, too, that you focus on the big things rather than getting bogged down in the minutiae of these issues. It’s really easy to get lost in the minutiae of a complicated program.”

And Coble says, the U.S. has moved into “an era of very, very  complicated programs. ACRE was unbelievably complicated. Crop insurance is very complex, as well.

“This means there is a challenging learning curve for farmers and farm organizations, and it will be worth your while to invest the time and effort to figure out the facts, to understand the basics of the program, and what the choices are for you, because this is probably where we’re going to be for the next several years.”

Current program is "really working"

Another panelist, William Cole, with the Cole Agency, a crop insurance provider at Batesville, Miss., has been an agent for 17 years, and is a member of the board of the Crop Insurance Professionals Association (CIPA).

“Over the years, crop insurance has had its highs and lows,” he says. “At one point, we were lucky to even have a program — and now it looks like crop insurance is going to be the cornerstone of the next farm bill.

Figures indicate, Cole says, “that our current program is really working, and that we’re going in the right direction.

We had 264 million acres covered nationwide last year —more acres than ever before. Total premiums paid and total coverage slashed all previous records. We had $4.5 billion in premiums paid and total coverage of $114 billion, roughly 20 percent more than the previous record.

“As of mid-January, we’d paid out $9.4 billion in indemnities, and that probably will go over $10 billion for 2011. All this is pretty impressive, considering where we were several years ago.”

Mississippi has consistently lagged behind the rest of the country in utilization of crop insurance, Cole says, “but we’re making big improvements. Since 2007, we’ve added 200,000 acres, now covering more than 3.5 million acres in the state.

“More importantly, catastrophic risk protection (CAT) acres have dropped from 1.6 million acres to in 2007 to 884,000 last year, which means more people are buying up to get higher coverage levels.”

There were 2.6 million acres of buy-up insurance purchased in 2011, he says, representing nearly $1.4 billion in coverage. “We had 1.8 million acres covered in 2007, but only $568 million in coverage.”

The “interesting thing about crop insurance,” Cole says, “is that anyone who has an idea for improving the program can take it before the Federal Crop Insurance Corporation board and, if that idea has merit, it can be approved and can be added as a new policy, or as a change or option.
“In 2011, cotton farmers saw a need for an option for cottonseed to cover the entire boll rather than just the lint. That project was worked on for three years by the Plains Cotton Growers at Lubbock, and now all cotton growers are benefiting from their work.”

The USA Rice Federation group has been working with the Crop Insurance Professionals Association on a downed rice endorsement, Cole says, which would cover the extra costs associated when a hurricane hits and lays the rice down. “We’re hopeful that this project will win approval.”

Another project, which he says “could be revolutionary,” is a margin coverage policy for rice, which would address big spikes in input costs. ‘This an entirely new direction for crop insurance, and it will be interesting to see how this develops.’

Also, he says, several groups, including CIPA, are working to improve the Actual Production History (APH) provisions that are “the foundation of all crop insurance programs that we’re working with in our state. We’re trying to address trending yields, especially those that affect our crops — cotton, soybeans, corn, and rice.

“As we move toward crop insurance provisions of the 2012 farm bill, we want to make sure we keep a program that works for everyone. I think the way the trend is working is that they want to try to prevent and protect against shallow losses.

“I think the way Farm Bureau and other groups want to proceed is to base this on similar Group Risk Income Protection (GRIP) policies. We sell GRIP policies, but in Mississippi they just haven’t been well-received. In 2007, we had 97,000 acres covered under GRIP  — last year, all the crop insurance agents based in Mississippi sold only 1,300 acres worth of GRIP coverage.”

Among the reasons for that, Cole says, “I think farmers don’t see it as a true risk management, but rather as a gamble that your experience will be exactly the same as the county’s.

“On the other hand, we like a GRIP-type policy that helps with the shallow losses, but keeps the current program in place, similar to the National Cotton Council’s Stacked Income Protection Plan (STAX), and feel that’s a wise way to go.

“I think we’ve got a long way to go with the next farm bill,” Cole says, “but I think our Mississippi members of Congress are working for our benefit, and it’s important that we’re all on the same page that the main idea is to ‘do no harm.’”

Risk Management Agency services

Mike Davis, deputy director of USDA’s Jackson, Miss., Risk Management Agency regional office, which serves Arkansas, Kentucky, Louisiana, Mississippi, and Tennessee, says there are now 10 regional RMA offices nationwide.

There are three major divisions of the agency:

• The Product Management Division in Kansas City, Mo., which is primarily responsible for overseeing product develop — “they write the insurance policies, loss adjustment procedures, and all procedures associated with delivery of the programs. They also have overall responsibility for the actuarial filing process, which includes the rating process, and they’re responsible for evaluation of new products.”

• The Compliance Division, which is responsible for compliance with program provisions by both producers and insurance companies writing the policies. There are six regional compliance offices in the U.S.

• The Insurance Services Division, which is responsible for program delivery, managing contracts between RMA and companies writing crop insurance, and for local program administration and support.

“Some of our responsibilities in the Jackson office,” Davis says, “include identifying and rating land that is considered high risk — in this region, that is primarily land that’s in the flood plain and susceptible to substantial flooding during the crop year.

“We also handle requests for changes in the actuarial, or written agreement, process. These include high risk land exceptions, coverage of land that’s considered new breaking, and extending coverage to crops for which there currently is no insurance program. Last year, we processed over 2,600 of these requests.”

The office is also responsible for carrying out functions associated with the filing process, Davis says, including T-yields; review and concurrence of rates issued by the Product Management Division; and establishing program dates, such as final planting dates.

“We’re also involved in the loss claims process; responsible for good farming practices determinations, which is basically an appeals process; collecting disaster information, as with the 2011 flooding; and education and outreach activities and resources.”

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