USDA Releases 3rd Draft of Crop Insurance Cuts

Two thirds of this savings will go toward paying down the federal deficit, and the remaining third will support high priority risk management and conservation programs.

Through this negotiation process, the Risk Management Agency has lowered the projected average long-term return for the companies to about 14.5%. An analysis shows that over the past 21 years, the crop insurance companies averaged a 17.0% return when the average reasonable rate for that period was 12.7%.

Producers likely won't notice any changes except for shifts within the companies themselves on how insurance is delivered. Price or coverage won't change, explained Chad Hart, extension economist at Iowa State University.

What is causing quiet concern for some is the fact that this takes out money from the baseline of the 2008 Farm Bill prior to the rewriting of the next farm bill. It essentially creates a "hole in budget that can't be recovered," said Tom Sell, Crop Insurance Professional Association's policy advisor.

The 2008 Farm Bill called for more than $6 billion in cuts, and the crop insurance industry has criticized that before those cuts have even gone into effect that more are coming in this revised Standard Reinsurance Agreement (SRA) released by USDA last week.

In a statement from the American Association of Crop Insurers, the group said this second $6 billion in cuts will be imposed in a period of time when RMA is implementing major administrative changes to the management of the program. "The RMA should have completed these administrative changes and fully implemented the cuts mandated by the 2008 Farm Bill before placing additional financial and regulatory pressure on the delivery system. Instead, the Administration is abandoning caution and moving ahead with a second round of huge reductions in financial support and implementation of concepts not provided for review in the months and months of negotiations on the on the 2011 SRA.”

In a letter to Agriculture Secretary Tom Vilsack, CIPA chairman Ronnie Holt strongly cautioned the Department that the unprecedented introduction of caps on agent commissions will, in point of fact, work to undermine the Administration’s stated objective of better serving underserved producers. "We also strongly caution that as much as a 50% cut on commissions anticipated in some States, including Iowa, is going to expand unemployment lines in many mid-sized and small towns," Holt wrote.

In 2009, 265 million acres across the U.S. were insured under the federal crop insurance program. The major commodity crops widely use the program and it increasingly is becoming one of the most important risk management tools producers use today.

Holt wrote that the emergence of federal crop insurance as a primary and essential safety net for producers began in earnest in 2000 and the public private partnership has proved a remarkable success. "Unfortunately, innovation in aggressively meeting producer risk management needs seems to have taken a back seat to seemingly endless rounds of cuts that show no signs of letting up until the cuts reach the bone and irreparable damage is done. If this occurs, Washington will have cut through the one thread of policy that, to date, has not generally been politicized and which has offered producers a semblance of stability in these uncertain economic and policy times," CIPA said.

 CIPA said in a statementit was unclear whether or not crop insurance companies will accept the latest proposal. "But what is clear is that agents remain focused on protecting farmers in this process. We continue to believe that the focus of the SRA should be on making policies more accessible while expanding coverage. We remain hopeful that positive changes to the SRA can still happen.”

CIPA has called for lower premiums that producers pay in lieu of an SRA renegotiation, which it said would reduce the deficit and the cost of delivery without injury to the federal crop insurance.