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Crop insurance: Government's method of choice to support commodity agriculture

Sept. 5, 2013 | 0 comments

As members of Congress prepare to come back to Capitol Hill and (perhaps) get to work on passing a farm bill, they will likely end up talking more and more about crop insurance - their chosen means to support commodity production.

Paul D. Mitchell, associate professors of Agriculture and Applied Economics at the University of Wisconsin-Madison, has been keeping a close eye on the farm bill debate as it went on in Congress over the last few years. (See main story on A1.)

He contends that as time goes on, government-subsidized crop insurance will be the government's chosen means to support commodity agriculture and to ensure that farmers meet certain conservation guidelines.

The federally subsidized crop insurance programs are administered by the USDA's Risk Management Agency and the Federal Crop Insurance Corporation (FCIC,) he explained.

The USDA develops policies, rules and premium rates. From 30-45 percent of premiums are paid by farmers.

The USDA pays subsidies to companies for administration and operation (A&O) equal to about 18-20 percent of premiums

In addition the FCIC reinsures the insurance companies as well as retaining some of the policies. "That means the FCIC, the government, pays some of the indemnities."

Crop insurance programs are dominated by corn and soybeans. "Crop insurance has become the primary mechanism the federal government uses to support commodity agriculture," Mitchell said.

In Wisconsin last year 70 percent of the corn acres were insured, which was up 3 percent from a year earlier; 74 percent of the soybean acres were insured. That figure is up to 75 percent this year, he said.

"Crop insurance is hugely popular in the Midwest," he said.

It's also popular in the wheat country of the Northern Plains, western Corn Belt, the High Plains region and the lower Mississippi River Valley, he said.

The good news for those regions is that lawmakers prefer the concept of crop insurance subsidies to nearly any other kind of government farm program and as time goes on, Mitchell predicts that crop insurance will dominate.

The bills that have gotten support from lawmakers in this farm bill go-round would eliminate direct and counter cyclical payments, the ACRE program and disaster payments.

Some programs, which basically didn't cost the federal government much, may be kept but might get new names and acronyms, he added.

Even when the House and Senate can agree on the concepts, they give similar programs different names and acronyms, he noted.

So-called "shallow-loss" programs would be those that "sit on top" of the crop insurance and cover part of farmers' deductibles. The savings from eliminating direct payments could be used to fund these programs.

"These would be similar to county-level ACRE programs."

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