The Farm Bill's Harvest Of Crop Insurance Benefits

The Farm Bill is a law that provides support, certainty, and stability to farmers, ranchers, and land stewards in the United States. The bill includes provisions for crop insurance, which helps protect farmers from financial losses due to poor harvests or declines in market prices. The federal crop insurance program is implemented through a partnership between the Department of Agriculture and private insurance companies. The program offers subsidized crop insurance policies, with the government paying a portion of the farmer's crop insurance premium. The 2018 Farm Bill, also known as the Agriculture Improvement Act, made few changes to the crop insurance program, with the most significant being the authorisation of crop insurance policies for industrial hemp crops.

The 2018 Farm Bill

The Agriculture Improvement Act of 2018, more commonly known as the 2018 Farm Bill, was signed into law by President Biden on November 16, 2023. This bill provides support, certainty, and stability to farmers, ranchers, and land stewards in the United States by enhancing farm support programs, improving crop insurance, maintaining disaster programs, and promoting voluntary conservation efforts.

Furthermore, the 2018 Farm Bill authorized crop insurance policies for industrial hemp crops, recognizing the growing importance of this crop. The bill also affirmed additional policy allowances, including the ability to include acreage in an adjoining county as a single enterprise unit, providing flexibility for farmers with land in multiple counties.

Overall, the 2018 Farm Bill aims to strengthen the crop insurance program, providing risk management tools and financial protection for farmers and ranchers across the nation.

Crop insurance for industrial hemp

The 2018 Farm Bill, also known as the Agriculture Improvement Act, has made industrial hemp production legal and eligible for crop insurance. The Farm Bill allows the Federal Crop Insurance Corporation (FCIC) to offer policies for industrial hemp. However, at present, there is no specific coverage available for hemp. Nevertheless, hemp production will not cause a farm to become ineligible for the Whole Farm Revenue Protection policy.

The Risk Management Agency (RMA) under the United States Department of Agriculture (USDA) has expressed pleasure in offering coverage to hemp producers. The RMA has announced a pilot hemp insurance program available in select counties through the Multi-Peril Crop Insurance (MPCI) program. This program provides coverage against yield losses due to insurable causes for hemp grown for fiber, grain, or cannabidiol (CBD) oil. To be eligible for this program, a producer must have one year of history producing hemp, have a contract for the sale of the insured crop, and meet the minimum acreage requirement of five acres for CBD and 25 acres for grain and fiber.

In addition to the MPCI program, the Noninsured Crop Disaster Assistance Program (NAP) is also available for hemp producers. The NAP provides coverage against losses associated with lower yields, destroyed crops, or prevented planting where no permanent federal crop insurance program is available.

Hemp producers should be aware that crops with THC levels above the federal legal limit are not considered an "insurable cause of loss." Additionally, hemp does not qualify for replant or prevented plant payments.

Private insurance options are also available for hemp producers, such as the Nursery Insurance Program and the Nursery Value Select Pilot Program if hemp is grown in containers. It is important for hemp producers to carefully review the terms, conditions, and exclusions of any insurance policy they consider and to work closely with knowledgeable insurance agents who can provide informed recommendations.

Reducing crop insurance costs

The federal crop insurance program offers subsidized crop insurance to protect farmers from financial losses caused by poor harvests and declining market prices. In 2022, the program supported about 1.2 million policies, covering 493 million acres and costing the federal government $17.3 billion. The program's cost is projected to exceed $101 billion over the next decade.

Reducing Subsidies for High-Income Participants

The federal crop insurance program provides the same level of premium subsidies to all participants, regardless of income. In contrast, other USDA farm programs have income limits that determine eligibility for payments. For example, under the 2014 Farm Bill, certain farm and conservation programs are unavailable to individuals or entities with an average annual gross income (AGI) exceeding $900,000. The absence of an AGI limit in the crop insurance program results in substantial subsidies for high-income participants. By introducing an income cap and reducing subsidies for high-income participants, the government could save millions of dollars with minimal impact on producer participation and program financial soundness.

Adjusting Compensation to Insurance Companies

The federal government compensates private insurance companies for delivering the crop insurance program, including selling and servicing policies to farmers. In 2022, the government paid insurance companies about $3.7 billion, including $2.2 billion in administrative and operating (A&O) subsidies and $1.5 billion in underwriting gains. The compensation paid to insurance companies is projected to average $3.8 billion annually from 2024 to 2033. However, GAO's analysis found that the rate of return for insurance companies exceeded market conditions, resulting in higher-than-expected compensation. Adjusting the program's rate of return to align with market conditions could save the federal government hundreds of millions of dollars annually without compromising financial incentives for companies to participate.

Reducing Premium Subsidies for High-Risk Land

Congress could consider lowering premium subsidies for farming on high-risk land to reflect the increased risks and potential for financial losses. This would encourage farmers to adopt more sustainable farming practices and reduce the financial burden on the federal government.

Improving Transparency and Implementing Means Testing

Increasing transparency in crop insurance subsidies and introducing means testing, similar to other farm subsidy programs, could help ensure that subsidies are distributed more equitably and effectively. This would prevent excessive subsidies from going to large farms or high-income participants, allowing for a more balanced allocation of funds.

Capping Premium Subsidies and Reducing Underwriting Gains

Placing a cap on premium subsidies and reducing underwriting gains paid to crop insurance companies can help control costs. The 2014 Farm Bill's requirement for budget neutrality in negotiations with insurance companies has limited the government's ability to achieve savings. By repealing this provision, Congress could enable the USDA to adjust compensation to reflect market conditions, resulting in significant cost savings.

Enhancing Risk Mitigation Strategies

Encouraging farmers to adopt on-farm risk mitigation strategies, such as soil-health practices and diverse crop rotations, can reduce the frequency and severity of financial losses. This would decrease the reliance on subsidized insurance and disaster assistance, benefiting both farmers and taxpayers.

Federal crop insurance program

The Federal Crop Insurance Program is authorized by the Agricultural Risk Protection Act of 2000 and is amended by the Agriculture Improvement Act of 2018 (also known as the 2018 Farm Bill). The program helps farmers get insurance to protect them from financial losses when crop prices decline or harvests fall short due to natural causes. The U.S. Department of Agriculture (USDA) offers subsidized crop insurance and partners with private insurance companies to run the program.

The Federal Crop Insurance Corporation (FCIC) provides more risk management options for farmers and ranchers, making crop insurance more affordable for veteran farmers. The program also continues to expand, providing safety net options for specialty crop producers. The 2018 Farm Bill also authorized crop insurance policies for industrial hemp crops.

The Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX) continue under the 2018 Farm Bill, although they have not been widely adopted. Producers who enroll in the Agriculture Risk Coverage (ARC) program cannot purchase SCO for the same crop on the same farm. STAX is only available to upland cotton producers, who may also purchase SCO policies but not for the same acres covered by STAX.

The Federal crop insurance program offers insurance policies at a subsidized rate. These policies make indemnity payments to producers based on current losses related to either below-average yields (crop yield insurance) or below-average revenue (revenue insurance). Premium subsidy rates have increased over the years, so producers pay around 40% of their premiums on average. Crop insurance is available for over 100 commodities, including some animals and animal products. However, coverage is not available for all commodities in all areas, and all types of insurance are not available for all commodities.

The federal government's crop insurance costs include subsidies to pay for part of a farmer's crop insurance premium (over 60% in recent years) and compensation to insurance companies for selling and servicing crop insurance policies. In 2022, the federal costs were $17.3 billion, with about $12 billion subsidizing premiums and the rest covering administrative costs and government losses related to the policies. The program's cost is projected to total more than $101 billion over the next decade.

Premium subsidies for policyholders

In 2022, the federal government subsidised about 60% of policyholders' premiums, amounting to $12 billion. This subsidy rate is set by Congress and is not dependent on the income level of the policyholder. This lack of income-based differentiation has led to criticism, with suggestions that high-income participants do not require the same level of financial assistance.

The absence of an income limit in the crop insurance program has resulted in relatively large subsidies for high-income participants. For instance, in the period from 2009 to 2013, a participant with an average annual gross income (AGI) exceeding the limit for other farm and conservation programs received an average of $1.2 million per year in premium subsidies. In contrast, participants with AGI below the limit received an average of approximately $7,480 per year.

Reducing premium subsidies for high-income policyholders has been proposed as a way to generate savings for the federal government without significantly impacting producer participation in the program or its financial soundness. This approach is supported by analyses indicating that a reduction in subsidies for high-income participants would only affect a small percentage of policyholders.

The National Sustainable Agriculture Coalition (NSAC) has put forth several recommendations to address this issue, including eliminating or reducing premium subsidies for farms with an AGI above a certain threshold, implementing payment caps, and introducing progressive caps for farms with higher production values.

In summary, premium subsidies for policyholders are a crucial aspect of the federal crop insurance program, but there is a growing consensus that reforms are needed to ensure equitable distribution of financial assistance and to curb excessive spending.

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