Budget Deal Targets Crop Insurance

Plan Would Require Crop Insurance Renegotiation, Lower Cap on Rate of Return

Jerry Hagstrom
By  Jerry Hagstrom , DTN Political Correspondent
The 2014 farm bill said the Agriculture Department's Risk Management Agency "may renegotiate" the Standard Reinsurance Agreement but does not require it. (DTN photo illustration by Nick Scalise)

WASHINGTON (DTN) -- The budget agreement reached between congressional leaders and the Obama administration would make changes to the crop insurance provisions in the 2014 farm bill and presumably provide more money for discretionary programs under the jurisdiction of the House and Senate Agriculture Appropriations subcommittees.

The bill would amend the Federal Crop Insurance Act to require that the Standard Reinsurance Agreement between the companies and the government be renegotiated no later than Dec. 31, 2016, and at least once every five years thereafter.

This section also establishes an 8.9% cap on the overall rate of return of retained premium for insurance providers under the agreement between the 2017 and 2026 reinsurance years. Currently, the negotiated overall rate of return is approximately 14.5%. The plan would cut an estimated $3 billion from the public-private crop insurance delivery system.

The 2014 farm bill said the Agriculture Department's Risk Management Agency "may renegotiate" the SRA, but does not require it.

The New York Times reported Tuesday that "the agreement would raise spending by $80 billion over two years, not including a $32 billion increase included in an emergency war fund."

"Those increases would be offset by cuts in spending on Medicare and Social Security disability benefits, as well as savings or revenue from an array of other programs, including selling oil from the nation's strategic petroleum reserves," The New York Times reported. "The Medicare savings would come from cuts in payments to doctors and other health care providers."

That "array of other programs" would apparently include the savings from the crop insurance program.


Congress has not released the Congressional Budget Office estimates of the savings, but Ferd Hoefner of the National Sustainable Agriculture Coalition said that based on previous Obama administration budget proposals, the savings has been estimated at $3 billion over 10 years.

Hoefner said NSAC, which represents smaller, environmentally minded farmers, "is pleased that a budget bargain has been struck, providing impetus to finish the work of funding the government for the fiscal year that has already begun."

He said he was particularly pleased that "the agreement includes a reversal of an outrageous 2014 farm bill provision that prevents taxpayers from benefiting from government negotiations with the private sector with regard to the delivery of crop insurance."

"That provision was classic special interest overreach and deserves to be scrapped," Hoefner said. "While there is a great deal more crop insurance subsidy reform needed to support family farms and the environment, renegotiation is a small but not inconsequential first step toward much needed comprehensive reform."

Hoefner also said that "with the additional funding the budget deal provides to the appropriators to finish the fiscal year 2016 funding bills, they should move quickly to eliminate the huge cuts to the farm bill's conservation programs by striking the 23% cut to the Conservation Stewardship Program in the pending House bill and the over $300 million cut to the Environmental Quality Incentives Program in both the pending House and Senate bills.

"These shortsighted cuts severely limit the capacity of farmers and ranchers to improve soil and water quality, to protect pollinators and habitat, conserve water, and prepare for extreme weather events."

Senate Agriculture Appropriations Subcommittee Chairman Jerry Moran, R-Kan., said at a recent hearing that if the subcommittee has more money, he is inclined to provide more money to the Food and Drug Administration to implement the Food Safety Modernization Act.


The Crop Insurance and Reinsurance Bureau (CIRB), National Crop Insurance Services (NCIS), and the American Association of Crop Insurers (AACI) reacted negatively to the proposal.

In a statement, the groups said: "Make no mistake -- the budget deal's proposed cuts to crop insurance would be devastating. Today, crop insurance is a successful public-private partnership that has already sustained $12 billion in cuts since 2008. This proposal would cripple that partnership and with it, the rural economy."

"Farmers and ranchers, lenders, input suppliers and processors, insurance and reinsurance organizations agree that crop insurance is the centerpiece of agricultural risk management," the groups said.

"The program is federally regulated and delivered by the private sector. The budget proposal would essentially destroy the delivery system and the timely service that farmers have come to rely on to get back on their feet after times of disaster.

"To add insult to injury, these cuts were airdropped without being proposed -- let alone considered -- by Congress. It doesn't make sense to attack crop insurance after this critical protection helped farmers and ranchers survive one of the worst droughts in our nation's history -- without calls for ad hoc crop disaster aid.

"It is particularly irresponsible to push these kinds of cuts at a time when crop prices are falling, farm incomes are on the decline, and extreme weather is wreaking havoc on rural America.

"We urge Congress to oppose this proposal. Don't re-open a farm bill that was heavily debated for five years -- and don't undermine the foundation of farmers' and ranchers' risk management."

The American Soybean Association and National Association of Wheat Growers also criticized the proposed cuts to crop insurance.

The ASA released a news release Tuesday defending the nation's farm program and calling on Congress to oppose any reopening of the farm bill.

"ASA absolutely opposes any effort by Congress to reopen any part of the farm bill as part of budget negotiations, and we implore lawmakers to reject any attempt to target crop insurance or any other farm bill programs for further cuts," ASA President Wade Cowan, stated in the news release.

"Speaking frankly, our farm economy is simply not in the shape it was even three years ago when we began the process of writing the farm bill. Crop values are down almost 50%, and our farmers face volatile weather ranging from flooding in the Carolinas to drought in Texas and fires in California," Cowan stated in the release. "Farmers need a stronger safety net, not a weaker one, and now is hardly the time to pull the rug out from under them by weakening the nation's investment in the crop insurance program."

The National Association of Wheat Growers echoed ASA's argument that the timing of the cuts would hurt agriculture.

"In this difficult economic climate, at a time when commodity prices are low, agriculture has already taken a hit. We took unprecedented cuts in negotiating the farm bill. Just one year into the new farm bill and Congress let sequester cuts happen. Now they want to cut more. We cannot stand by and allow more cuts to be made," said NAWG President Brett Blankenship.


Outgoing House Speaker John Boehner, R-Ohio, announced the deal as part of his promise that his replacement would not have "to walk into a dirty barn full of you-know-what."

House Ways and Means Committee Chairman Paul Ryan, R-Wis., who is expected to be elected speaker this week, denounced the deal, saying he did not like the way it had been negotiated, and promised that "under new management," the "people's business" would be conducted differently, The Washington Post reported.

The pact was negotiated privately by Boehner, Senate Minority Leader Harry Reid, D-Nev.; House Minority Leader Nancy Pelosi, D-Calif.; and Senate Majority Leader Mitch McConnell, R-Ky., the Post added.

The plan is for the House to vote as early as Wednesday, and Boehner is scheduled to resign as speaker by Friday, the Post noted.

The White House praised the overall budget deal.

"While this agreement is indeed a compromise, it is promising that Democrats and Republicans in Congress were able to come together to reach a strong agreement that would break the cycle of short-sighted, crisis-driven decision-making," a White House official said in a statement emailed to reporters.

"We urge members of Congress from both parties to take the next step and pass a budget based on this agreement."

"The president has repeatedly called on Congress to pass a budget that lifts harmful spending cuts known as sequestration and that invests in both our economic security and national security," the White House official said.

"The agreement reached by Congressional leaders last night meets these key tests: It provides substantial relief from harmful spending cuts, and it does so equally on the defense and non-defense sides of the budget."


Jerry Hagstrom