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USDA official says… Crop insurance ‘now affordable’

RMA official says… Modified crop insurance ‘affordable’

Crop insurance changes which heavily subsidize premiums should encouraging more farmers to protect their crops this coming season. But a Risk Management Agency official warned producers at the recent Market Outlook Conference in Tunica that “this is the first time in a long time that we see the chance for crop insurance to work. Don't mess it up.”

According to Mike Moore, regional director of USDA/RMA, Valdosta, Ga., crop insurance has typically been a tough sell for the average farmer. “For the most part, the only people participating were those who knew they were going to have a loss. Those who were not likely to have a loss were not participating.”

This resulted in very high premiums which further discouraged most farmers from participating. Moore said that the only way to get the “rank and file farmer” to participate was to increase the government portion of the premium.

Under the Agricultural Risk Protection Act (ARPA) of 2000, the subsidy pays 67 percent of the premium at the 50 percent coverage level, 64 percent at the 55 and 60 percent level, 59 percent at the 65 and 70 percent level, 55 percent at the 75 percent level, 48 percent at the 80 percent level and 38 percent at the 85 percent level.

For example, a Washington County, Miss., cotton grower who expects an 800-pound yield and a price of 62 cents, would pay $6.21 per acre at the 60 percent coverage level. That compares to $8.93 in 2000 and $15.97 in 1999.

The only downside is that some people might think the program is too good a deal, including Memphis cotton merchant William Dunavant, who told attendees of the meeting that the new program encourages overproduction and poor farming practices.”

Moore, however, said the new program is “crop neutral. But there is a perception out there right now that cotton is a much better deal, relative to the other crops. We do have a concern that particularly on cotton, people are going to go out there and put a bunch of cotton on land that is not suited to cotton.”

Moore said that there were plenty of other reasons for early forecasts of increased cotton acreage in 2001, including reduced production costs in weevil-free areas and new technologies. “The point is that cotton has gotten more competitive versus other crops.

“The program is a good deal for people who play legit,” Moore added. “And the changes made revenue insurance for grain crops more affordable at the upper level.”

New rules also tighten up compliance through FSA oversight, including addressing the practice of moving yield records from one farm to another. “We now have a whole series of limitations put on that,” Moore said.

ARPA will invest $8.2 billion over five years to make buy-up coverage more affordable; address the problem of multi-year losses on APH; expand research and development for new products and under-served areas; and tighten compliance.

More on these features:

  • Tightened compliance includes more coordination with the Farm Service Agency (FSA), such as annual data reconciliation, a FSA loss adjustment monitoring program and consultation with FSA state committees. The effort also excludes losses due to poor farming practices and expands penalties for fraud.
  • RMA is also required to develop a plan to detect and monitor agents and loss adjusters whose performance substantially deviates from normal for the area and submit an annual report to Congress describing the efforts taken to implement these provisions.
  • The investment in private sector research and development under ARPA totals $175 million and eliminates direct research and development by RMA.
  • Changes to the CAT program include: requires a group risk alternative for CAT; raises the fee to $100 per crop per county; allows associations to pay CAT fees in some cases; reduces company reimbursement to 8 percent of imputed premium for CAT.
  • Changes to added land rules address the problem of producers taking high proven yields off productive farms and applying them to less productive farms. Moore said much of the turmoil originated in the south Delta in Mississippi on cotton and led to nationwide changes that hurt farmers all over the country.

Under the new rules, all existing yield history databases based on reference unit procedures had to be reworked as they were brought forward for the 2001 crop year. And acreage increases for 2001 are limited to the lessor of 50 percent of the existing basic unit acreage or 640 acres.

The signup period ends Feb. 28.


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