Farmers dodged a bullet as Congress removed a vexing provision from the U.S. budget proposal that would have slashed over $3 billion from the crop insurance program.
The crop insurance program was targeted as a way to save money as Congress struggled to reach budget agreement. This time, thanks mainly to the upcoming election, crop insurance was spared. However, several observers fear that there will be more bullets coming as America struggles with debt and the deficit.
Was it just a couple of seasons ago that Congress hailed crop insurance as a way of appeasing voters fed up with “paying farmers for what they don’t produce,” replacing that tired saw with a program that required producers to pony up money if they wanted to protect their crops? Indeed, crop insurance allows producers to choose their level of protection in case of a crop disaster.
In an attempt to balance the federal budget, Congress proposed $3 billion in cuts to crop insurance support as part of a national budget deal. The fear in rural America is that the issue could rise again, leaving producers with fewer providers willing to sell them economical coverage.
“Slashing the federal crop insurance program is bad policy,” said National Corn Growers Association President Chip Bowling, himself a farmer.
Clear on the other side of the political spectrum, National Farmers Union (NFU) President Roger Johnson called the proposal “shortsighted” and urged members of Congress to reject any budget deal that cuts crop insurance delivery rates.
The proposal, part of a deal to help cut the government’s mounting debt, was made public late in October and would have reduced the rate of return for Approved Insurance Providers (AIPs) through the Standard Reinsurance Agreement (SRA).
“As we get more urban, the public expects food at a reasonable price. They don’t think about the risk in producing it…and the risk is taken by the farmer,” Joe Davis, CEO of AgriLogic Insurance Services, said. Headquartered in Overland Park, Kansas, the company offers crop insurance programs through local agents across the country.
Davis said crop insurance foundered for the 60 years it was under the government’s umbrella. “Crop insurance took off with the coming of the public-private partnership,” Davis said. “To dismantle that successful program for relative pennies in the budget is concerning.”
Opposition to the cut proposal was vocal from farm Democrats and Republicans, including Agriculture Committee Chairmen Sen. Pat Roberts, R-Kan., and Rep. K. Michael Conaway, R-Texas, and Ranking Members Sen. Debbie Stabenow, D-Mich., and Rep. Collin Peterson, D-Minn.
“The attempt to gut crop insurance in the budget agreement was not acceptable,” Conaway said. “Our nation’s farmers and ranchers did their part in reining in our nation’s debt in the 2014 farm bill, saving an estimated $23 billion. It is imperative that we do not undermine their trust by attacking the primary tool they use to manage the tremendous risks involved in producing food and fiber.”
There was agreement from ranking ag committee member Peterson who said, “We have assurances that the cuts will be removed and the farm bill will not be raided. We produced a fiscally responsible and bipartisan farm bill in 2014 that saved $23 billion. We’ve done our part.” Peterson said that without the crop insurance cuts, he could now support the budget agreement. That measure eventually passed.
Read More: ‘Figuring Out The Puzzle of Crop Insurance’
What has not passed is the fear in Northeastern farm communities and nationwide that the crop insurance program again will come under fire.
The budget deal would have cut reimbursement rates from 14 percent to 8.9 percent. Previous budget proposals were set at 12 percent. However, since the SRA change was implemented, the average rate of return has been less than 4 percent. Since 2013, John Deere Insurance Company, John Deere Risk Protection, Inc., OneBeacon Insurance Group Ltd., Monsanto Co., ProAg, and The Goldman Sachs Group, Inc. (Global Atlantic Financial Group, Ltd. insurance unit) have sold their crop insurance operations. Wells Fargo is said to be trying to sell its crop insurance arm as well. These are all huge companies who fear the future of crop insurance.
Davis said the reason for those sales is that publicly held firms need to show a return on their capital. “Some of those companies sold for pennies on the dollar since there was no ROI (return on investment),” Davis said. “Profits were miniscule.”
The public-private crop insurance partnership traces back to America’s need to meet World Trade Organization concerns about the nation’s counter-cyclical crop payments.
“Attacks on crop insurance are increasing in frequency,” Johnson said. “As larger segments of the population are further and further removed from agriculture, the value of this safety net program is less and less understood,” he said.
Bowling said the 2014 farm bill provides farmers with a critical safety net, the cornerstone of which is the federal crop insurance program.
“Cuts to the crop insurance program will lead to fewer insurance providers and agents, and that means fewer choices for farmers to manage their risk,” he said. “This deal is yet another attempt to reopen the farm bill, despite major reforms and $23 billion in budget savings,” Bowling, a corn farmer from Newburg, Maryland, said.
“Agriculture remains the only industry that has voluntarily accepted spending reductions,” Bowling noted, adding that corn producers and other farmers stood firm with Chairmen Roberts and Conaway and Ranking Members Stabenow and Peterson in defending the farm bill and calling on Congress to let crop insurance alone.
A struggling business
The entire crop insurance business is struggling. “More and more crop insurance providers are exiting the sector because these cuts have made it no longer profitable to be engaged in this business,” Johnson said. “Since 2013 we have witnessed the exit of five large crop insurance providers with additional providers teetering on the edge. NFU remains concerned about concentration in the marketplace and its impact on farmers and ranchers. These budget cuts would accelerate the consolidation of the crop insurance sector.”
The line is long of farmer representatives who agree with Bowling, who said, “We urge all farmers to contact their elected officials immediately. Tell them that if cuts to federal crop insurance are not removed, they must vote no on the budget bill.”
“Farm Bureau and farmers are always concerned when you hear proposals to cut or modify an agreement that took years to put together,” said Mark O’Neill, strategic communications director for Pennsylvania Farm Bureau, Camp Hill, Pennsylvania. He noted that it took a lot of hard work and negotiation to put together the Farm Act.
“Those numbers were heavily scrutinized. There were sacrifices made by the farm community. One of the key parts of the Farm Bill was the structure of the crop insurance program.”
Johnson noted that the public-private crop insurance framework allows farmers who have been negatively impacted to receive indemnity payments in less than 30 days. In the old days, ad hoc disaster assistance often took a year or more to provide assistance to farmers in need.
O’Neill agreed. He noted that in times of drought, for example, the government would be called upon to bail out entire regions. Without crop insurance, he said, a lot of farmers would go out of business.
Davis noted that the Farm Service Agency (FSA) used to administer crop insurance. While he is clear that he is not attacking the Obama Administration, he said he is perplexed about why it appears the FSA and Administration want to take crop insurance back under the government’s control. In fact, in defending the national health care system, Obamacare, the Administration pointed to the success of the public-private crop insurance program as a predictor for similar success in the health sector.
Republicans and Democrats, conservatives and liberals all agree that the current budget was kluged together to save face and keep the country from plunging into uncertainty. All agree that the issue will be rehashed after this year’s elections. And, in all likelihood, crop insurance again will be in the firing zone.
Local, rural fallout
“Your local crop insurance agent is going to get the brunt of any decision like this,” Davis said, who noted that margins are so thin that the issuing companies have no option but to pass on any cuts to the local gent.
“There will be a waterfall effect,” Davis said. “The money the government perceives that we (as issuers) get goes to the agent and into the local, rural economy. It supports the mom-and-pop diners and local businesses.
In fact, he said, cuts such as that proposed would take about half of the local agency’s contribution out of the local economy.
“We, as companies, would have no option but to go to the direct market,” Davis said. “We’d have to sell on the Internet. Direct marketing means no money goes into the local economy.”
As a result, the customer service and hand-holding provided by local agents who know local conditions and are aware of local considerations would vanish. Farmers would be on their own, buying insurance online or through the mail. Worse yet, their claims would be serviced by someone likely far away and with little concern for local farms, towns or businesses.
Speed of reimbursement is another key worry. Cash flow always is difficult in tough times. For many family operations the difference between payment in 30 days and getting a check a year later is the difference between continuing and shuttering an operation, Johnson said.
This is not the first time crop insurance has been slapped around. “The efficient delivery of services has continued to take place in spite of the 2008 Farm Bill and the 2011 SRA, which cut $12 billion over 10 years in reimbursement rates,” Johnson said.
“From Farm Bureau’s prospective, taking money away from crop insurance would be something that we’d be concerned about,” O’Neill said. “Crop insurance is one of the more successful programs in the Farm Bill.”
Not only does it insure food but it also helps keep America in the forefront of the world, Davis maintained. His background in government programs made him aware that the United States spends a lot of Department of Defense money tracking world food supply and production. Where there is a shortage of food, instability typically follows. He said the crop insurance program is one way to keep America’s agriculture and its food supply stable and profitable.
Most observers agreed there will be no renegotiation of the Farm Bill or its crop insurance provisions in the next year – especially since it is a presidential election year.
Are the worriers playing Chicken Little?
U.S. Agriculture Secretary Tom Vilsack has said there is still room for tightening in the crop insurance program. That raised eyebrows and concerns.
“It will depend on the (next) administration and the government’s support for a safe and reliable food supply,” Davis said.