Minding Ag's Business

Risk Management Agency officials are walking a balancing act with county-based group plans in 2014. They've unleashed a slew of changes in the group-risk plans GRP and GRIP, as I mentioned in my last post, including combining the policies into a new Area Risk Protection Insurance (ARPI) plan starting with the new crop year. It's an effort to appease critics but also to expand what has been a popular revenue protection concept for the next farm bill.

Where they are available--and in many parts of the country they aren't--ARPI plans will continue to be insurance favorites with irrigators and some of the nation's largest farmers, agents and RMA officials agree. ARPI does come in handy for those who rent or buy new farms and lack yield history, who irrigate or who farm such large geographic areas they rarely trigger a loss on an enterprise unit.

In an interview with DTN last week, RMA said some of the monetary changes in the county GRP and GRIP policies were done for better "public understanding." In a recent Federal Register statement, the agency concluded that some indemnities might have appeared "excessive." History shows that area plans typically paid better than individual coverage. For 2012, corn payouts ran $7.20 for each $1 of GRP premium, $5.16 for each $1 of GRIP and $2.70 for each $1 of Revenue Protection premium, according to RMA's most recent summary of business.

So I interpret this cutback as something to appease crop insurance critics after severe yield losses in 2012's drought triggered payments up to $1,000 to $1,300/acre in severely stressed Illinois counties. Considering that the worst drought in 50 years created a scorched earth yield there, and U.S. corn prices simultaneously hit an all-time record, the payouts weren't surprising but they could be lightening rods for critics. It's kind of like criticizing FEMA's budget for Hurricane Sandy payouts, but that's the politics of the farm bill debate at the moment.

Starting next year, reducing the 1.5 multiplier to 1.2 on ARPI payouts will trim payouts only in the worst-case scenarios when an entire county's yield goes to zero, the RMA officials said. That's a "hardly ever" event, so for practical purposes, they believe it will not affect an individual policyholder's coverage.

The irony is that while the old area plans are written on only about 2% of insurance policies, many farm organizations are pressing to make this kind of safety net one of the center pieces of the new farm bill. If that happens, USDA needs much better yield data to calculate revenue protection. At the moment, the National Ag Statistics Service farmer surveys of yields are falling short.

In 2010, RMA eliminated county-based crop insurance from one third of the 3,141 ag counties nationwide, leaving great swaths of the South, Great Plains and Eastern U.S. with fewer management options. USDA statisticians said their inability to collect at least 30 yield reports per county or 25% of a county's harvest area made county-based insurance hard to validate.

By requiring all ARPI policyholders to report their actual yields for the first time, RMA officials hope to solve some of those statistical issues. If they use yield histories collected from area plans to supplement individual crop insurance policies, ARPI might be able to expand to more fringe areas in the future, they said.

For a fact sheet on ARPI plans go to Sheet: http://www.rma.usda.gov/…

If you want more "light" reading on the rationale for changes in county insurance, read USDA's Federal Register rulings here http://www.gpo.gov/…

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