AgWatch


Critics Keep Trying To Whack Crop Insurance

SARA WYANT

WASHINGTON, D.C.
   A new, multi-year farm bill was signed, sealed and delivered last year, but that won’t stop critics from trying to make changes – especially when it comes to crop insurance.
   Farm state lawmakers got a somewhat surprising wake-up call a couple of weeks ago when they learned that a small group of budget negotiators agreed to cut $3 billion over 10 years in the crop insurance program. That savings would be generated by requiring the Agriculture Department to renegotiate its Standard Reinsurance Agreement (SRA) with the crop insurance companies and lower the cap on the rate of return on premium to 8.9 percent, from the current 14.5 percent.
   Since 2011 the industry’s rate of return has varied from a loss of 15 percent in fiscal 2012, a drought year, to a gain of 13 percent in fiscal 2014, according to USDA.
   House Agriculture Chairman Mike Conaway predicted the cut would force many insurers out of business and persuaded GOP leaders to remove the cut later on, as part of the fiscal 2016 omnibus spending bill that will be considered in mid-December. And Senate Agriculture Committee Chairman Pat Roberts won a similar commitment in the Senate. The plan is to roll back the cuts as if they never happened, taking the savings from somewhere outside of agriculture, according to a House Agriculture Committee spokesperson.
   Roberts told us that maintaining a strong crop insurance program is “the number one issue for farmers in the entire country” and that these types of cuts could drive more companies out of business, resulting in farmers not being able to obtain crop insurance in some parts of the country.
   “If you don’t have crop insurance, your local lender says sorry about that and up and down Main Street you really have a problem,” he explained.
   Another set of cuts proposed.
   Yet, it didn’t take long for crop insurance critics to propose another round of cuts, this time seeking $24 billion out of this public/private partnership.
   Bills being introduced in the House and Senate would cut $19 billion over 10 years by eliminating the Harvest Price Option on revenue policies. The rest of the savings would come from slashing returns to crop insurance companies and agents and cutting farmers’ premium subsidies. The program is estimated to cost about $8 billion to $9 billion a year.
   The legislation, known as the Assisting Family Farmers through Insurance Reform (AFFIRM) Act, includes a $3 billion reduction in insurers' rate of return that is contained in the budget deal recently signed into law by President Obama – even though Senate and House Republican leaders have pledged to reverse the cut before it can take effect. Under the budget provision, the insurers’ rate of return would be capped at 8.9 percent, even in the best of years.
   “The AFFIRM Act makes sensible changes to our nation’s crop insurance program to reduce unnecessary subsidies directed towards our country’s largest and most profitable farms and agribusinesses,” said Rep. Jim Sensenbrenner, R-Wis., who is cosponsoring the House bill with Wisconsin Democrat Ron Kind. 
   “These important reforms not only strike a better deal for taxpayers but will have no out of pocket expense to farmers,” Kind said.
   Sen. Jeff Flake, R-Ariz., another long-time crop insurance critic, is introducing the Senate version of the bill. 
   His bill represents a collection of cuts that have been previously proposed to crop insurance in Congress by himself, Kind and others, or by the White House in recent years. The provisions include a $40,000 cap on premium subsidies and a means test for premium subsidies that when combined would save $2.3 billion over 10 years. Farmers with more than $250,000 in adjusted gross income (AGI) would be ineligible for premium subsidies, under the bill. 
   A version of the AFFIRM Act introduced in 2013 was estimated to save $11 billion.
The new bill also would cap insurers’ administrative and operating costs at $900 million a year, saving the government $3 billion over 10 years.
   Meanwhile, another critic of the program, Sen. Jeanne Shaheen, D-N.H., recently wrote to Majority Leader Mitch McConnell and Minority Leader Harry Reid to urge that they keep the $3 billion cut to insurers’ rate of return.
   So the reality is that defenders of crop insurance may find themselves playing the equivalent of the Whac-a-mole game in the coming months – pounding down one effort to cut the program while another one pops up.
   Kansas State Professor Art Barnaby warns that both farmers and lenders will need to be on alert, because crop insurance is usually part of the collateral pledged for farm operating loans.  
   “Supporters claim these cuts to ‘subsidies’ and elimination of the Harvest Price Option (HPO) will create ‘no out-of-pocket expense for farmers’.  What?  One needs to understand Washington math to understand that statement,” Barnaby wrote in a recent blog. 
   “This assumes the ‘experts’ know what is best for farmers and farmers don’t need the HPO, so by that math it will cost farmers less.  But farmers can already buy coverage without the HPO, so how does this save farmers money?  Also, farmers who exceed the adjusted gross income (AGI) means test will clearly pay more in premiums. ∆
   SARA WYANT: Editor of Agri-Pulse, a weekly e-newsletter covering farm and rural policy. To contact her, go to: http://www.agri-pulse.com/
   Editor’s note: Agri-Pulse Senior Editor Philip Brasher contributed to this column.

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