Crop Insurance/Disaster Relief

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Crop Insurance/Disaster Relief

• Federally subsidized crop insurance
• Actual Production History (APH)
• Most recent 10 years of actual yield histories
• Multiple-Peril Crop Insurance
• Various causes of loss
• Federal Crop Insurance Corporation (FCIC)
• Passed in 1938
• Has been repeatedly changed since then
• Long History of providing Ad hoc Disaster
  Assistance
• Political

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Background

• Insurance in agriculture has traditionally been
  crop yield insurance
• Multiple peril (weather, fire, hail, wind,
  disease, insects, earthquake, and wildlife)
• Based on
• historical producer yields
• coverage level chosen ( of APH)
• FCIC determined/developed market price converts
  losses into dollars

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Background

• Participation in Crop Insurance Program
• 1980 10 of eligible acres
• 1999 70 of eligible acres

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Background (Cont.)

• Insurance designed to provide protection against
  substantial losses
• Deductible works like car insurance
• Most common coverage in Texas has been at the 65
  level maximum government subsidy except cotton
  (50)
• Higher levels of coverage have been cost
  prohibitive

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Current Insurance Alternatives

• Actual Production History (APH)
• Catastrophic Coverage (CAT)
• Group Risk Plan (GRP)
• Crop Revenue Coverage (CRC)
• Income Protection (IP)
• Group Revenue Insurance Policy (GRIP)
• Adjusted Gross Revenue (AGR) - schedule F
• Revenue Assurance (RA)
• Pilot Programs
• Livestock
• Fruits and vegetables

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Dryland Cotton Yield per Planted Acre
(Williamson Co.), 1989-1998
405
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Producers Hate Crop Insurance
Southern Producers Doesnt pay Premiums too
high relative to indemnities Midwest
Producers My premiums subsidize producers in
marginal areasThere is truth to both points of
view
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Is There Friction?
There are certain parts of the country that have
acres that are challenged by weather and farm
practices that are not up to what they should be
... the two Texans who lead the House Agriculture
Committee come from such districts and have been
joined by others in supporting crop
insuranceSenate Agriculture Committee Chairman
Richard Lugar (R-Ind.) October 19, 1999
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Comparison of Loss Ratios for Selected States
and Commodities, 1998 1999
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Agricultural Risk Protection Act of 2000

• Major increase in subsidy levels
• Revenue policies receives a percentage of premium
  assistance equal to APH
• Yield history adjustments for catastrophic years
• Substitute 60 of t-yield for actual yields less
  than 60 of t-yield
• Only applies to yield guarantee, premium still
  based on actual yields
• Administrative fees
• CAT from 60 per crop per county to 100
• Buy up from calculation to 30 per crop per
  county
• Fees waived for limited resource farmers
• Programs for livestock
• The cost of production as price election
• Premium discounts for good performance
• Beefs up efforts to combat fraud

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Agricultural Risk Protection Act of 2000
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Realities

• Crop insurance provides incentive to produce in
  high risk areas
• Ad hoc disaster assistance undermines crop
  insurance program
• Incentive not to purchase insurance
• Have had to increase subsidy