Crop Insurance and Next Farm Bill

OMAHA (DTN) -- Crop insurance has become the biggest safety net for commodity producers -- despite talk about disaster programs -- leading at least some economists to question whether crop insurance has become too costly or taken the risk out of farming.

Congress is on break this week, but crop insurance and disaster aid for farmers was the focus Tuesday of a panel discussion by economists hosted by the American Enterprise Institute (AEI) in Washington, D.C. Economists serving as fellows for AEI have been some of the crop-insurance program's biggest critics in recent years, including their most recent report released Monday, "What Harm Is Done by the Federal Crop Insurance Program Today?"

DTN Political Correspondent Jerry Hagstrom moderated the AEI panel, noting sometimes it is difficult to get into the weeds of federal crop insurance because policy wonks often dive into the "actuarial soundness" of the various insurance policies.

"If you are serious about agricultural policy, you must understand the crop insurance program for both its benefits and its liabilities," Hagstrom said.

Partially reflecting the low price protection offered in commodity programs such as Agricultural Risk Coverage and Price Loss Coverage (ARC and PLC), the Congressional Budget Office pegs that the commodity safety net will cost taxpayers under $5 billion a year going forward while crop insurance will cost roughly $11 billion. Crop insurance, though, covers a much broader array of crops and forage than ARC and PLC do.

Congress also has provided more than $13 billion in ad-hoc disaster aid for crop losses in 2020-22, but it takes time for lawmakers to pass those bills and USDA to provide the relief.

"As it operates today, in an ad-hoc form, it is slow, unreliable," said Roger Cryan, chief economist for the American Farm Bureau Federation, on disaster aid. "Producers wait a long time to get paid. They don't know if they are going to get paid. I've heard of farmers who've invested on their assumption they are going to get payments, and those payments never came."

NO PROGRAM CUTS EXPECTED

Buried in Tuesday's talk was an important point for producers. Lawmakers on both the House and Senate Agriculture Committee largely back the crop insurance program. As they write the next farm bill, members of Congress are more likely to propose expanding crop insurance rather than cut it. That likely includes avoiding any new limits on administrative and operating (A&O) expenses billed by crop insurance companies to the federal government.

"There is pretty strong support for the crop insurance programs in the House and Senate Agriculture Committees," said Stephanie Mercier, principal for the group Agricultural Perspectives and a former economist for the House Agriculture Committee. Mercier added, "I think significant cuts to funding for the program are relatively unlikely under those circumstances."

DON'T GO CHANGING THE PROGRAM

Cryan stuck with AFBF policy. He noted crop insurance "reaches those corners and nooks of agriculture not covered by other programs, and the ability to develop new products."

Cryan added, "As the crop insurance program grows, it becomes more and more feasible to make that the focus of covering losses," he said.

AFBF opposes adding conservation requirements to crop insurance. The group also opposes any reduction in the government's share of premium subsidies.

"The public is paying a share of that because the public has a benefit in that participation," he said.

Cryan later said there were people who would prefer to idle ground for the environment rather than see it farmed with crop insurance. Producers don't like that suggestion, he said. "Do not ask them to farm less when food insecurity globally is on the rise," he said.

CROP INSURANCE GROWTH AND COMPETITION

Joe Glauber, former chief economist at USDA and a nonresident senior fellow at AEI, pointed to the growth of crop insurance, covering now almost 500 million acres when rangeland is included. More than 90% of acreage in some major field crops is covered by insurance policies.

"What has concerned me is the growth of the program into areas that may be not so appropriate for subsidized insurance products to handle," Glauber said.

The expansion of new products now increasingly competes against future contracts and other private products that are unsubsidized. Glauber pointed to livestock policies in which producers are "essentially harvesting those subsidies by taking offsetting positions in futures contracts."

Barry K. Goodwin, a nonresident senior fellow at AEI and a professor of the Department of Agricultural Economics at North Carolina State University, agreed that crop insurance often crowds out private businesses offering similar risk management tools.

"There is no way in the world any private entity can compete with a 65% premium subsidy and the operating subsidies," Goodwin said.

Under a crop insurance code "508(h)" the Risk Management Agency reviews recommended policy proposals to adjust crop insurance or expand coverage. Such reviews led RMA to allow insurance companies to sell Post-Application Coverage Endorsement (PACE) to producers who split nitrogen applications.

Goodwin said the 508(h) process has led to "a huge cottage industry" of people developing insurance plans that don't really have a lot of need and possibly cost more to develop than the revenue they will generate.

INCREASING RISK

Goodwin and Glauber also pointed out that crop insurance guarantees and protection levels also have a way of increasing risks along the way.

"When you are subsidizing risk protection, you are subsidizing risk, which leads to more risk reduction on lands that might otherwise not be in production," Goodwin said.

Talking about a disaster program, Glauber added that crop insurance for some producers can have coverage levels of 85% or even as high as 95% protection levels.

"Who isn't in the crop insurance program right now? So why is there a need for a permanent disaster program?" Glauber said.

Glauber said the lower deductibles and add-on guarantees provided for crop insurance can make some producers almost indifferent about how they market their crop.

Goodwin added, "Are we trying to remove all of the downside risks from agriculture?" Goodwin said, adding "What other sector of the economy does the government guarantee 95% of your revenues?"

The American Enterprise Institute livestream: https://www.aei.org/…

Also see, "Amid an Array of Issues, Some Lawmakers Have Disaster Aid Concerns," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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