As the Agriculture Committees in both the U.S. House of Representatives and the U.S. Senate prepare to mark up farm bill proposals this week, farmers and the commodity organizations that support them will watch closely to see where cuts are proposed, how deep those cuts are and what kind of safety net will be left after all the slicing and dicing is accomplished.

Crop insurance will be top of mind as the industry assesses the importance of what has become the key element of the farm safety net.

The National Association of Wheat Growers (NAWG) voiced concern over a proposal introduced in “an alternative conservation title bill,” that would limit government cost-share for crop insurance for crops produced on land that has been converted from sod grass or some wetlands.

“The bill would also tieconservation compliance to crop insurance, which NAWG strongly opposes,” according to a NAWG press release. The organization expressed concerns that crop insurance would remain a target for legislators’ budget axes and expects “numerous proposals to weaken the crop insurance program. NAWG will continue to track such proposals and coordinate with state associations to combat them.”

Texas corn farmers also see crop insurance as an increasingly important aspect of protecting farmers against catastrophic losses. “With the recently proposed farm bill from both the House and the Senate, crop insurance will be the tool farmers have left to provide risk coverage for their farm and to offer protection for the operating loans received from agricultural lenders,” says David Gibson, executive vice president for the Corn Producers Association of Texas.

“The last two years were prime examples of how crop insurance is supposed to work and why it is vital to have that kind of support for our producers in the farm bill,” said Steve Verett, executive vice president for Plains Cotton Growers (PCG). “A strong crop insurance program allows our producers to have the assurance of being able to sustain their operations even after adverse events, whether it be drought or a hailstorm.”

The May 10 PCG newsletter also commented on how the farm bill proposal will affect crop insurance. “In the crop insurance title, producers can buy area-wide coverage that would cover anywhere from 70 to 90 percent. The program carries an 80 percent premium subsidy and no reference price, which industry leaders believe is a policy that would help resolve the World Trade Organization dispute with Brazil, who has long criticized target price or reference price provisions for cotton.”

Lindsay Kennedy, with the National Sorghum Producers, also commented on the importance of crop insurance.

"A strong crop insurance title is vital for sorghum farmers to effectively manage their risks in an inherently volatile industry," she said. "This reliable protection, tailored to individual farms, allows producers to get credit from lenders, and at the same time shields taxpayers from overexposure by shifting the lion’s share of the risk to private sector companies and reinsurers."

NCIS comments on farmers’ burden

The National Crop Insurance Services (NCIS), Overland Park, Kan., makes a good case for continuation of a strong crop insurance program and continued robust government support. Tom Zacharias, in a recent editorial for Roll Call/CQ, explained that farmers, even with government assistance on crop insurance premiums, bear a significant burden and “shouldered nearly $17 billion in losses in 2012.”

Some $12.7 billion of that total came “before farmers saw a dime in crop insurance indemnity payments as part of their deductibles…. When combined with the $4.1 billion farmers paid out of their own pockets to purchase crop insurance last year, total farmer investment neared $17 billion,” Zacharias said.

He said those numbers are important because of the ongoing assault on the “the men and women who put food on our tables and clothes on our backs” over their purchasing of crop insurance. “Critics called crop insurance a farmer bailout and said things like farmers were ‘laughing all the way to the bank’ and were ‘praying for drought, not praying for rain.’ Farmers even have been compared to cheap drunks at an open bar and told to pay their fair share.”

The article points out some undisputed facts of what transpired after the worst drought in decades:

  • Indemnities to farmers cost about $17 billion, but “thanks to crop insurance’s design, these indemnities were not completely borne by taxpayers because farmers and insurers picked up a major portion of the costs and sustained significant economic losses.”
  • “This was the sixth time since 1983 that crop insurers lost money. Compare that to the property and casualty insurance industry, which has lost money only once as far back as data is available.”
  • “When crop insurance premiums exceed losses, the government sees underwriting gains that help offset payments in bad years. In fact, the government experienced nearly $4 billion in gains from 2001-2010. Congress was not asked to fund an ad hoc disaster bill despite the historic devastation endured by our agricultural producers.”

Zacharias said, “Lawmakers and the American public deserve an intelligent conversation about the future of agriculture.”

And 2013 is shaping up to be another year that underlines the critical importance of crop insurance. A bi-weekly crop insurance update from NCIS highlights the ongoing drought.

“The 2012 drought – the worst this country has seen in decades – is now becoming the 2013 drought with 47 percent of the continental U.S. – including a good portion of the nation’s breadbasket – still in some stage of drought, compared to roughly 37 percent a year ago, according to the April 30, 2013 U.S. Drought Monitor.

“In other words, many farmers are starting off 2013 in worse shape than they were at the start of 2012.”

For instance, 77 percent of the state of Nebraska is experiencing “extreme” drought or worse. Nearly every county in Arizona, California, Colorado, Kansas, Nevada, New Mexico, South Dakota, Texas, Utah and Wyoming are either abnormally dry or in some level of drought.

With those alarming early-season trends, farmers are purchasing crop insurance policies to protect themselves against potential losses. As of May 6, 2013, more than 240,000 policies had been purchased, protecting nearly 88 million acres and representing nearly $20 billion in liabilities. Farmers’ premiums totaled $800 million. These numbers will climb as the season progresses.

Key numbers

NCIS offers other pertinent facts, including:

  • In 2012, farmers invested more than $4.1 billion to purchase more than 1.2 million crop insurance policies, protecting 128 different crops.
  • Crop insurance policies protect more than 281 million acres, with insured acreage now equal to 86 percent of planted cropland in 2012.
  • Farmers have spent more than $30 billion out of their own pockets to purchase crop insurance since 2000.
  • To date, Kansas, Texas, California, Oklahoma, Nebraska and Florida lead the way in the number of crop insurance policies purchased.

Below is a brief summary of the crop insurance title to be included in the Senate markup of the farm bill.

Responding to the concerns of farmers across America, the Agriculture Reform, Food and Jobs Act of 2013 strengthens and improves coverage for all commodities and underserved crops like fruit and vegetables without making budget cuts to the crop insurance title. The bill also addresses the declining Actual Production History (APH) yield problem by increasing the county transitional yield.

Creates the Supplemental Coverage Option

The Supplemental Coverage Option allows producers to purchase additional coverage on an area basis. The coverage option establishes a trigger on coverage offered only if losses exceed 22 percent for producers enrolled in ARC and 10 percent for all other producers.

Expands Crop Insurance for Fruit and Vegetable Producers

Crop insurance coverage is expanded for underserved crops and regions, including fruit and vegetable producers. The bill provides additional assistance for underserved producers to partner with private developers of crop insurance to create improved insurance products. The bill also allows the Risk Management Agency (RMA) to conduct research and development on new or improved crop insurance products. It also creates a new partnership to expand access of index- based weather insurance products for fruit and vegetable growers who don’t have sufficient price or yield data for traditional insurance.

Provides Revenue Crop Insurance for Cotton and Peanut Producers

The bill creates a stand-alone revenue protection coverage program for cotton growers. It also creates a separate peanut revenue insurance with an effective price for peanut growers.