Convo 3
Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.
We All Rely on the Farm Safety Net
The weather has been so wild and so unpredictable this year that it’s not just farmers who are complaining about it. Here in the Corn Belt, it’s been cold and damp for so long that it took us forever to get our crop in.
Parts of the Southwest wheat belt are parched, while millions of acres in the vast Mississippi Delta region are underwater.
But being subjected to the unforgiving whims of Mother Nature is a central aspect of being a farmer.
Decades ago, our elected leaders recognized this fact and decided that in order to have a safe and ample food supply, we needed to have farm safety net policies in place to ensure that unpredictable weather doesn’t knock America’s farmers out of business and leave the country short on food.
It’s the future of a key aspect of the farm safety net — crop insurance — and whether or not it will be viable after the upcoming federal budget cuts, that keeps me awake at night. As a business owner, I understand the importance of balancing a budget, and I hope Congress does, too.
But if Congress eviscerates crop insurance or other farm policies that are but a dot on the federal budget but are so important to our unique sector of the economy (“Farming: Of equity and evolution,” June 2), then all Americans and a rapidly expanding global population would feel the pinch.
Crop insurance is an example of a federal program that provides a tremendous amount of benefit per dollar of federal investment.
For example, in 2010, for a relatively small federal outlay combined with private monies from the farmers who purchased the policies, the government was able to leverage a $4 billion investment into an astounding $80 billion in liability coverage for America’s food, feed and clothing crops.
That’s a $20 return on every dollar invested.
This amplification is possible because crop insurance combines the best of government and private sector to help protect farmers from adversity — promoting a safe, affordable, ample food supply for our citizens and for the world.
The government helps farmers underwrite a portion of their premiums to make crop insurance more affordable, and the private sector provides the policies and coverage that kick in when needed.
So if disaster strikes — whether in the form of floods or free-falling grain markets — crop insurance means that farmers aren’t thrown to the wolves and that they live to provide food, fiber and energy for this country yet another day.
This security helps farmers farm better and is a fundamental reason why America has the most dynamic agricultural sector in the world. The modern crop insurance model is a great example of the ability of the public and private sectors to partner, harmonizing their efforts and increasing their benefits.
And crop insurance is very popular among farmers nationally. In fact, more than 1.1 million policies covering 256 million acres across the country were written in 2010 to deal with risks.
And when you consider that the agricultural sector produces the food that we eat, the ethanol that we use as fuel for transportation and is a significant economic engine in the United States, it seems that it might be worth protecting.
Now I understand that when Congress starts trimming the budget, everyone is going to argue that their specific program deserves protection. While I can’t speak for other aspects of federal spending, I can attest to the fact that crop insurance and other aspects of farm policy work for me.
Without a doubt, they are the policies that keep family farms like mine in business and our nation food secure.
It is important to note that nearly $12.45 billion total has already been cut from crop insurance in the last several years. That’s sobering news for a farmer like me, because I know how much I need crop insurance to protect myself from disaster and how important it is for farmers to have crop insurance to secure a loan.
Agriculture is one of the only industries to have already made big sacrifices to help trim budgets. And, there isn’t much left to cut — farm policies account for less than one-quarter of one percent of federal spending.
Further reductions will only weaken our country’s food supplies and punish our state’s workforce — one-fourth of which depends on agriculture for jobs.
The United States needs to be put back on firm financial footing. But sacrificing food security and one of the economy’s lone bright spots is not the best path to get there. We’ll all sleep better knowing there will be food on the table tomorrow.
Author: Greg Schwarz is the president of the Minnesota Corn Growers Association and a third-generation Minnesota farmer who raises corn, soybeans and turkeys in Le Sueur County.
This op-ed appeared in the Minneapolis Star Tribune on June 13, 2011.
We All Rely on the Farm Safety Net
The weather has been so wild and so unpredictable this year that it’s not just farmers who are complaining about it. Here in the Corn Belt, it’s been cold and damp for so long that it took us forever to get our crop in.
Parts of the Southwest wheat belt are parched, while millions of acres in the vast Mississippi Delta region are underwater.
But being subjected to the unforgiving whims of Mother Nature is a central aspect of being a farmer.
Decades ago, our elected leaders recognized this fact and decided that in order to have a safe and ample food supply, we needed to have farm safety net policies in place to ensure that unpredictable weather doesn’t knock America’s farmers out of business and leave the country short on food.
It’s the future of a key aspect of the farm safety net — crop insurance — and whether or not it will be viable after the upcoming federal budget cuts, that keeps me awake at night. As a business owner, I understand the importance of balancing a budget, and I hope Congress does, too.
But if Congress eviscerates crop insurance or other farm policies that are but a dot on the federal budget but are so important to our unique sector of the economy (“Farming: Of equity and evolution,” June 2), then all Americans and a rapidly expanding global population would feel the pinch.
Crop insurance is an example of a federal program that provides a tremendous amount of benefit per dollar of federal investment.
For example, in 2010, for a relatively small federal outlay combined with private monies from the farmers who purchased the policies, the government was able to leverage a $4 billion investment into an astounding $80 billion in liability coverage for America’s food, feed and clothing crops.
That’s a $20 return on every dollar invested.
This amplification is possible because crop insurance combines the best of government and private sector to help protect farmers from adversity — promoting a safe, affordable, ample food supply for our citizens and for the world.
The government helps farmers underwrite a portion of their premiums to make crop insurance more affordable, and the private sector provides the policies and coverage that kick in when needed.
So if disaster strikes — whether in the form of floods or free-falling grain markets — crop insurance means that farmers aren’t thrown to the wolves and that they live to provide food, fiber and energy for this country yet another day.
This security helps farmers farm better and is a fundamental reason why America has the most dynamic agricultural sector in the world. The modern crop insurance model is a great example of the ability of the public and private sectors to partner, harmonizing their efforts and increasing their benefits.
And crop insurance is very popular among farmers nationally. In fact, more than 1.1 million policies covering 256 million acres across the country were written in 2010 to deal with risks.
And when you consider that the agricultural sector produces the food that we eat, the ethanol that we use as fuel for transportation and is a significant economic engine in the United States, it seems that it might be worth protecting.
Now I understand that when Congress starts trimming the budget, everyone is going to argue that their specific program deserves protection. While I can’t speak for other aspects of federal spending, I can attest to the fact that crop insurance and other aspects of farm policy work for me.
Without a doubt, they are the policies that keep family farms like mine in business and our nation food secure.
It is important to note that nearly $12.45 billion total has already been cut from crop insurance in the last several years. That’s sobering news for a farmer like me, because I know how much I need crop insurance to protect myself from disaster and how important it is for farmers to have crop insurance to secure a loan.
Agriculture is one of the only industries to have already made big sacrifices to help trim budgets. And, there isn’t much left to cut — farm policies account for less than one-quarter of one percent of federal spending.
Further reductions will only weaken our country’s food supplies and punish our state’s workforce — one-fourth of which depends on agriculture for jobs.
The United States needs to be put back on firm financial footing. But sacrificing food security and one of the economy’s lone bright spots is not the best path to get there. We’ll all sleep better knowing there will be food on the table tomorrow.
Author: Greg Schwarz is the president of the Minnesota Corn Growers Association and a third-generation Minnesota farmer who raises corn, soybeans and turkeys in Le Sueur County.
This op-ed appeared in the Minneapolis Star Tribune on June 13, 2011.
Rural America’s Roller Coaster
Things were going well in rural America.
The Federal Reserve Bank of Kansas City credited small towns, specifically farming communities, with leading the country’s recession recovery in 2010.
Farm household incomes climbed. Agricultural exports reached new records. Buying power from the Heartland trickled out to the coasts. Farm policies came in well under budget. Crop prices for many commodities grew to help offset increasing input costs (if you think filling up an SUV once a week is expensive, try filling up a tractor or combine multiple times a day).
And the Fed said the good news should extend into 2011, unless something unforeseen happened.
It did, and Mother Nature rained on the parade. And rained and rained and rained — or in some parts of the country, kept the rain from coming at all.
Droughts have destroyed wheat crops in the Plains and have already cost Texas farmers and ranchers $1.5 billion, according to Texas A&M University.
Meanwhile, moisture made it difficult for many corn farmers to plant their crops — for example, only 11 percent of the Ohio crop was in the ground by mid May, compared to the normal 80 percent.
And don’t forget the floodwaters along the Mississippi River from Illinois to Louisiana and in the Red River Valley. Or the damaging spring tornadoes that hammered the Midwest and South. These disasters took lives and destroyed communities along with valuable farmland.
Bad weather is nothing new to farmers. They know the risks when they get into the business, and they hope there are enough 2010’s to offset the 2011’s. The question becomes: how do you weather the storm in a lean year to still be around for another?
That is where our nation’s farm policy comes into play — to provide some stability for our farmers and for the country’s food and fiber supply while limiting taxpayer exposure.
A good example of this is crop insurance. Farmers buy policies, made possible with government investment, to act as a cushion. When disaster strikes, private insurance companies cover the bulk of the losses, shielding taxpayers from tremendous risk exposure. But, without the public partnership, multiple peril insurance on a crop — something we take for granted on our cars and homes — would not be possible.
Banks also extend annual operating capital to growers — yearly loans that usually exceed the amount most Americans will borrow in a lifetime — without any knowledge of what the weather will bring. They are willing to make the loans because crop insurance and farm policies are in place to act as a backstop to the kind of farm financial crisis America experienced in the mid and late 1980s.
But for how long will that backstop be in place? Farm policy was cut sharply in 2006, 2008 and again last year—making agriculture among the only sectors to make a sacrifice toward deficit reduction. Still, farmers find themselves in the crosshairs yet againthis year.
A lot hangs in the balance as lawmakers determine whether crop insurance and other vital farm policies will survive.
Besides providing us all three square meals a day, the country’s 210,000 remaining full-time farmers underpin 21 million U.S. jobs and annual economic activity larger than most foreign countries’ GDPs.
Retired Army General and Supreme Allied Commander of NATO Wesley Clark recently credited these men and women with being key to the country’s security, calling them “a thin green line standing between prosperity and disaster.”
As our country struggles to get back on its feet, and rural America picks up the pieces following a string of violent storms, it’s time to put an emphasis on holding the thin green line.
So this week, we are teaming up to bring this timely message to Washington.
Considering it’s all made possible for less thanone-quarter of one percent of the federal budget, it is under budget, and it has already contributed $15 billion toward deficit reduction, we have a good story that should resonate with everyone, regardless of their political stripes.
After all, not everybody farms, but everybody eats.
Authors: Teresa Scanlan, a native of Gering, Neb., is Miss America 2011. Larry Combest, a Republican from West Texas, was a member of the U.S. House of Representatives from 1985 to 2002 where he served as Chairman of the Select Committee on Intelligence and the Agriculture Committee. He currently lobbies for numerous agricultural organizations, including crop insurance agents.
This op-ed appeared on The Hill on June 6, 2011.
Convo 2
It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.
Convo 2
It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.
No better investment than farm safety net
We have been taught from an early age that humans have four basic needs: food, water, clothing and shelter. Interestingly enough, it is the U.S. farm sector that provides two — food and clothing — out of those four needs. This fact puts farming and the programs that protect farmers from adversity — the farm safety net — pretty high on this country’s priority list. Yet farm programs account for just one-quarter of 1 percent of the federal budget, and some are advocating further reductions. Though every dime we spend must be scrutinized, dollar for dollar there is not a better investment of taxpayer funds than the U.S. farm safety net. Take the federal crop-insurance program, for example. It’s hard to think of a federal program that exacts so much benefit per dollar of federal investment. This amplification is possible because crop insurance combines the best of government and the private sector to help protect farmers from adversity and, therefore, ensure a safe, affordable, ample food supply for our citizens and the world.
No better investment than farm safety net
We have been taught from an early age that humans have four basic needs: food, water, clothing and shelter. Interestingly enough, it is the U.S. farm sector that provides two — food and clothing — out of those four needs. This fact puts farming and the programs that protect farmers from adversity — the farm safety net — pretty high on this country’s priority list. Yet farm programs account for just one-quarter of 1 percent of the federal budget, and some are advocating further reductions. Though every dime we spend must be scrutinized, dollar for dollar there is not a better investment of taxpayer funds than the U.S. farm safety net. Take the federal crop-insurance program, for example. It’s hard to think of a federal program that exacts so much benefit per dollar of federal investment. This amplification is possible because crop insurance combines the best of government and the private sector to help protect farmers from adversity and, therefore, ensure a safe, affordable, ample food supply for our citizens and the world.
Convo 1
Failure to anticipate an imminent downturn in the agricultural economy by not maintaining farm policies through the farm bill and crop insurance… would, in time, prove penny wise and pound foolish.
Convo 1
Failure to anticipate an imminent downturn in the agricultural economy by not maintaining farm policies through the farm bill and crop insurance… would, in time, prove penny wise and pound foolish.
Farm Bill Principles and Crop Insurance
America’s abundance of affordable and nutritious food is the envy of the world. This is not an accident, as our long history of investment in agricultural infrastructure has made this possible. Underpinning this system is crop insurance’s modern public/private partnership that provides a safety net for farmers, helping them manage price and weather risks.
USDA’s Agricultural Outlook conference speech by Sen. Debbie Stabenow of Michigan, chair of the Senate Agriculture Committee, outlined her principles for the upcoming Farm Bill. She urged us not to look at the 2012 Farm Bill under the lens defined by budget cuts or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.”
Ask any Michigan farmer — or any American farmer — what fits this bill, and crop insurance will be among the first responses. Crop insurance provides protection to producers of the Great Lakes state’s lucrative specialty crops — like the well-known tart cherry crop — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers.
It is easy to see why crop insurance has gained so much popularity with farmers. In fact, more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010.
Stabenow wants the Farm Bill to be based on the notion that farmers know better than anyone else what works for them. A major strength of today’s crop insurance program is that it allows farmers to create individualized risk management solutions tailored to their specific risks.
When catastrophe hits, the only thing protecting many producers from bankruptcy is crop insurance, which is streamlined by the efficiency of private sector delivery. And banks are increasingly relying on crop insurance, knowing fully that the money they loan farmers for food production is partially secured by this program.
Unfortunately, this risk management tool has been put under the budget-cutting microscope in recent years. Lawmakers in search of budget offsets for other, often non-farm priorities, have already substantially reduced funding.
Bill Murphy with USDA’s Risk Management Agency recently cited an agency report that indicated current investments in crop insurance are delivering a significant bang for the buck. The persuasive attributes of crop insurance, despite the funding reductions already taken, underscore a program that is cost effective and sustainable.
The U.S. agricultural sector is a source of deep economic strength and stability. As weather-driven crop failures globally cause price fluctuations and food shortages we should be heartened by our fiscally sound crop insurance policies. As Stabenow also noted, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.” Indeed, crop insurance is attempting to meet this need not only in Michigan, but nationwide as well.
NCIS Responds to Los Angeles Times Article
Below you will find NCIS’ response to the Los Angeles Times article “Farm Insurance Fraud is Cheating Taxpayers out of Millions” from February 6, 2011.
NCIS Response To the Editor: (These comments are based on letters submitted to the editor of the Los Angeles Times by Dallas Smith, former Deputy Under Secretary of USDA, and Keith Collins, former USDA Chief Economist and a crop insurance industry consultant, as well as other material.)
Beginning with its sensationalist headline, the Los Angeles Times misrepresents the occurrence of fraud in the Federal crop insurance program. The article fails to tell the success story that private insurers and their licensed agents now provide coverage on $80 billion of America’s agricultural production.
The industry shares the Times’ disdain for fraud, and has implemented effective and unprecedented measures to deter and identify false claims. The program has been a pioneer in the use of data mining, utilizes the large field staff of the Farm Service Agency to spot check questionable operations, employs over 4,700 certified crop loss adjusters and conducts numerous claim reviews. These measures have driven the incidence of program abuse far below other lines of property and casualty insurance.
The Times reports, without evidence, “a wave of scams sprouting across the nation.” Six cases are mentioned. One case, in California, was uncovered by USDA in 2001. Another case mentioned, in North Carolina, was uncovered in 2000. Many measures to prevent fraud and abuse have been implemented since these old cases were first discovered. Moreover, the Times fails to note that 13.3 million crop insurance policies have been sold since 2000. Again without evidence, the Times and Professor Bruce Babcock simply assert that companies have little incentive to fight fraud. To Babcock, it “makes sense.” In reality, the companies take on substantial risk and making unwarranted payments reduces industry profitability. The companies, along with their large, professional loss adjuster workforce, have every incentive not to make unmerited payments. The crop insurance industry, in partnership with USDA, has zero tolerance for fraud, and is making every effort to root it out and protect America’s farmers and taxpayers.
The Times also erred in stating that companies and agents “reap most of the benefits” of the crop insurance program. The article stated farmers received “$1.7 billion” in premium subsidies, implying insurance companies received more than farmers. In fact, farmers received $5.4 billion in premium subsidies in 2009. They received another $1.6 billion in delivery cost subsidies paid to companies on their behalf. Otherwise, such delivery costs would be built into premium rates, the practice in all other lines of insurance. In addition, farmers received the benefits of risk protection that enables farm survival in the event of catastrophe.
The article quoted Babcock as saying the industry keeps the most profitable customers and shifts the riskiest, least profitable customers to taxpayers. Unfortunately the Times failed to note that the companies retain risk on the vast majority of policies. Nor did the Times explain that while the companies can cede some policies to the government, the government sets premium rates, not companies, and companies must sell to any farmer wanting insurance. These regulatory requirements cause the companies to take risks over which they have no control and that explains why companies are permitted to cede some, and only some, of the risky policies to the government.
Original Los Angeles Times article can be found here.
NCIS Responds to Los Angeles Times Article
Below you will find NCIS’ response to the Los Angeles Times article “Farm Insurance Fraud is Cheating Taxpayers out of Millions” from February 6, 2011.
NCIS Response To the Editor: (These comments are based on letters submitted to the editor of the Los Angeles Times by Dallas Smith, former Deputy Under Secretary of USDA, and Keith Collins, former USDA Chief Economist and a crop insurance industry consultant, as well as other material.)
Beginning with its sensationalist headline, the Los Angeles Times misrepresents the occurrence of fraud in the Federal crop insurance program. The article fails to tell the success story that private insurers and their licensed agents now provide coverage on $80 billion of America’s agricultural production.
The industry shares the Times’ disdain for fraud, and has implemented effective and unprecedented measures to deter and identify false claims. The program has been a pioneer in the use of data mining, utilizes the large field staff of the Farm Service Agency to spot check questionable operations, employs over 4,700 certified crop loss adjusters and conducts numerous claim reviews. These measures have driven the incidence of program abuse far below other lines of property and casualty insurance.
The Times reports, without evidence, “a wave of scams sprouting across the nation.” Six cases are mentioned. One case, in California, was uncovered by USDA in 2001. Another case mentioned, in North Carolina, was uncovered in 2000. Many measures to prevent fraud and abuse have been implemented since these old cases were first discovered. Moreover, the Times fails to note that 13.3 million crop insurance policies have been sold since 2000. Again without evidence, the Times and Professor Bruce Babcock simply assert that companies have little incentive to fight fraud. To Babcock, it “makes sense.” In reality, the companies take on substantial risk and making unwarranted payments reduces industry profitability. The companies, along with their large, professional loss adjuster workforce, have every incentive not to make unmerited payments. The crop insurance industry, in partnership with USDA, has zero tolerance for fraud, and is making every effort to root it out and protect America’s farmers and taxpayers.
The Times also erred in stating that companies and agents “reap most of the benefits” of the crop insurance program. The article stated farmers received “$1.7 billion” in premium subsidies, implying insurance companies received more than farmers. In fact, farmers received $5.4 billion in premium subsidies in 2009. They received another $1.6 billion in delivery cost subsidies paid to companies on their behalf. Otherwise, such delivery costs would be built into premium rates, the practice in all other lines of insurance. In addition, farmers received the benefits of risk protection that enables farm survival in the event of catastrophe.
The article quoted Babcock as saying the industry keeps the most profitable customers and shifts the riskiest, least profitable customers to taxpayers. Unfortunately the Times failed to note that the companies retain risk on the vast majority of policies. Nor did the Times explain that while the companies can cede some policies to the government, the government sets premium rates, not companies, and companies must sell to any farmer wanting insurance. These regulatory requirements cause the companies to take risks over which they have no control and that explains why companies are permitted to cede some, and only some, of the risky policies to the government.
Original Los Angeles Times article can be found here.
NCIS Responds to New York Times Editorial
Below you will find NCIS’ response to the New York Times editorial “Here’s an Easy One” from January 15, 2011.
NCIS Response To the Editor:
The call for billions of dollars in farm subsidy cuts (“Here’s an Easy One“, Jan. 15) offered a misleading treatment of crop insurance.
First, farmers’ premium subsidies do not raise premiums. Premiums are actuarially determined based on actual crop history. Farmers receive premium subsidies, which provide for affordable protection against natural disasters. Crop insurance provides the financial safety net for America’s farmers and ranchers and avoids the multi-billion dollar emergency disaster programs of the past.
Second, The Times omits the new agreement reached in 2010 between the insurance companies and the Administration that provides at least $4 billion in crop insurance program cuts. These cuts are specifically earmarked for deficit reduction. People in agriculture want deficit reduction just as much as the Times. Agriculture is willing to contribute our fair share, based on accurate analysis and recognition that agriculture has just contributed billions, unlike many other sectors of our economy.
Thomas P. Zacharias, President
Original New York Times editorial can be found here: Here’s an Easy One.
NCIS Response to Chris Clayton
Farmers buying crop insurance as enterprise units get increased federal subsidy
Chris Clayton, AgFax — November 3, 2010
Tom Zacharias, newly-named president of National Crop Insurance Services, said enterprise units have expanded the opportunity for farmers to manage their risk. “I would say, in general, it has been very well-received,” Zacharias said. “There is evidence enterprise units have moved producers from CAT (catastrophic) to buy-up coverage,” Zacharias said. Zacharias said he has heard insurance representatives say that about 40 percent of their business is enterprise units. In the Corn Belt, it looks as if there is more uptake for enterprise units on single-crop ground. There have even been increased sales in other regions of the country, such as the Mississippi Delta. More acres and more diversification reduce the likelihood of a payout, so it reduces the premium substantially, while it increases the premium subsidy. “It provides a pretty good discount,” Zacharias said. “The benefit to the producer is reduced premium.” The benefit to the insurer is reduced risk….
NCIS Response to Chris Clayton
Thank you for the recent discussion we had regarding the status of the crop insurance program which focused on the recent experience with the new enterprise unit pilot program authorized by the 2008 Farm Bill. I appreciate the article you released on November 3 calling attention to this new and popular feature of crop insurance.
I do, however, have a concern regarding the final portion of the piece, and apologize for not contacting you sooner. Your article ended with the following statement attributable to Professor Bruce Babcock: “Of the $13 billion in support for crop insurance, more than $7 billion went to the companies. Farmers received $6 billion in net indemnities,” Babcock testified. “Crop insurance failed the cost-effectiveness test, because it simply makes no sense for taxpayers to spend $13 billion to deliver $6 billion in net payments to farmers.” I take exception with these statements for two reasons: (1) the supposed “efficiency/effectiveness” metric does not accurately measure either efficiency or program benefits and costs and (2) the numbers reported are for 2008 and 2009; they look backward at only two selected years and do not reflect recent program changes and future expectations.
Issue (1). The metric — $7 billion “to the companies” compared with farmers receiving “$6 billion in net indemnities”— does not accurately portray the underlying economics of crop insurance. Let me explain why it is misleading and not a useful comparison.
Farmers’ net income (indemnities less farmer premium) is being compared to company gross income (A&O payments plus underwriting gains). A&O is a producer subsidy paid to the companies on behalf of the producer. The appropriate comparison would be net income to net income. That comparison shows farmer net income for 2008 and 2009 of $6 billion and company net income of, at most, $3.4 billion (assuming A&O payments equal delivery expenses), not $7 billion. In fact, company income would be less than $3.4 billion, as actual delivery expenses for 2008 exceeded A&O payments (this can be found in the Grant Thornton analysis on company profitability). Final expense data for 2009 is not yet available, so company net income cannot yet be determined exactly.
Benefits of crop insurance should not be inappropriately measured as net indemnities to farmers. Farmers buy and benefit from insurance even when indemnities are zero. As you are aware, crop insurance provides farmers with the opportunity to better manage their marketing plans and obtain financing from year to year. Although these types of benefits are difficult to measure explicitly, they are of value and Babcock fails to acknowledge them.
Issue 2. Using only two years, 2008 and 2009, to judge the program is also inappropriate. Because prices and yields vary greatly from year to year, crop insurance premiums and performance are better judged on long-term experience. Moreover, while 2008 may have been a typical year, 2009 had the third lowest level of losses relative to premium in the 29 year history of the program. It was a rare year, which distorts Babcock’s metric. The metric also does not reflect the changes in the new Standard Reinsurance Agreement (SRA), which reduced company funding by $6 billion over 10 years as compared to expected funding prior to the new SRA, nor does his data fully reflect the cuts made in the 2008 Farm Bill. If premiums remain at this year’s level of less than $8 billion, and RMA’s estimates of the expected company rate of return on retained premium for 2011-2015 are used, then future expected net income (net underwriting gains) of the companies would range from $1.0 to $1.2 billion per year, about 30% less than the level used by Babcock. In addition, A&O payments are capped in the new SRA at about $1.3 billion per year, again about 30% less than the level used by Babcock.
I certainly have no issue with articles that comment on crop insurance program costs. My only hope is that such articles make meaningful comparisons and use relevant data.
Thanks again for the recent interview, and please feel free to contact me if I can answer any questions you may have in the future.
Regards,
Tom Zacharias
President
National Crop Insurance Services
Crop Insurers, Agents Adjusting
A vibrant farm industry is currently helping the crop insurance industry cope with the Agriculture Department’s decision to substantively cut back its subsidy program, “but every year is a new year,” the head of the trade group that represents the industry said last week. “Obviously, with the new standard operating agreement, there is a reduction in profits,” said Tom Zacharias, president of the National Crop Insurance Services, Overland Park, Kans. These cuts include reduction in reimbursement for delivery expense, administrative costs and operating costs, as well as a reduction in expected underwriting gain for the companies. The Agriculture Department is also installing a new data processing system that will require companies to modify their systems in order to report to the agency, Mr. Zacharias said. Agents were impacted as well with caps on commissions.
Major Crop Insurance Changes for 2011 Crop Year – Combo’s Product Released for 2011 Crop Insurance Year
After several years of planning, the Risk Management Agency will release the COMBO product for use in insuring crops for the 2011 cropping year. The first experience many producers will have with the Combo product will be when insuring wheat for 2011. The COMBO product is meant to simplify crop insurance choices, replacing many individual farm-level products with one product: the COMBO product. The release of the COMBO product does not impact county level plans such as Group Risk Plan (GRP) or Group Risk Income Plan (GRIP).
Everyone Wins With a Strong Crop Insurance Policy
It’s no great surprise when a well-funded libertarian think tank full of Washington policy wonks pushes for the belief that the federal government should not be involved in crop insurance and other key farm policies. But those of us in farming know better. All we need to do is to remember the recent floods, droughts and other natural disasters that, without some government help, would’ve left our towns, our jobs, our economy and our lives in ruin. The simple fact is that everyone wins with a strong crop insurance policy. It’s good for farmers because we’re not faced with losing our farms every time a natural disaster occurs. But it’s also good for consumers, particularly those in urban areas who rely on others to grow all of their food.
Everyone Wins With a Strong Crop Insurance Policy
It’s no great surprise when a well-funded libertarian think tank full of Washington policy wonks pushes for the belief that the federal government should not be involved in crop insurance and other key farm policies. But those of us in farming know better. All we need to do is to remember the recent floods, droughts and other natural disasters that, without some government help, would’ve left our towns, our jobs, our economy and our lives in ruin. The simple fact is that everyone wins with a strong crop insurance policy. It’s good for farmers because we’re not faced with losing our farms every time a natural disaster occurs. But it’s also good for consumers, particularly those in urban areas who rely on others to grow all of their food.
Reports Set Framework for Improvement to Organic Crop Insurance Programs
The USDA Risk Management Agency released three reports that provide the framework for improvements to crop insurance programs available to producers of certified organic crops. According to a press release, USDA will issue organic price elections for the 2011 crop year for cotton, corn, soybeans and processing tomatoes. “USDA is working to provide producers of organic crops with improved opportunities and resources,” said Agriculture Secretary Tom Vilsack. “The release of these reports and RMA’s announcement of the price election marks another step in that continuing effort.”
Crop Insurance Benefits for Vegetable Producers Under New SRA
While the new Standard Reinsurance Agreement (SRA) for federal crop insurance programs has been controversial, vegetable growers may find more benefits and options available under the new SRA, according to Growing Produce. For more information on the new SRA, click here and here to read past US Ag&Food Law and Policy blog posts on the topic.
Vilsack says insurance firms will accept cuts
Agriculture Secretary Tom Vilsack says he expects most if not all crop insurance companies to sign an agreement that will reduce the industry’s profits. “This is a fair deal and it’s reflected in the fact that we’re seeing a number of companies being prepared to accept the terms and conditions,” Vilsack said on a conference call with reporters. Sixteen senators, including leaders of the Senate agriculture committee, appealed to Vilsack last week for last-minute changes to the agreement, which companies must sign if they want to continue selling the federally subsidized insurance.
Senate leaders still unhappy with crop insurance changes
Sixteen U.S. senators, including the Agriculture Committee’s top Democrat and Republican, sent the U.S. Department of Agriculture (USDA) a letter on July 2 urging the administration to modify its proposed $6 billion in cuts to crop insurance. In the letter, the senators note that the $6 billion in proposed cuts over the next ten years will severely constrain the CBO baseline for the next farm bill. The senators recognized that although USDA’s plan is to utilize a portion of the savings to expand certain crop insurance coverage and enrollment of acres into the Conservation Reserve Program and Conservation Reserve Enhancement Program is intended to respond to concerns about reductions to the farm bill baseline, “it is unclear what the exact impact will be on the baseline.”
Crop Insurers Signing on to Contract With $6 Billion in Cuts; Agents Object to Caps
This week, U.S. crop insurers will have to sign the latest long-term contract with the federal government — a deal that slashes billions from the long-standing public-private partnership. The U.S. Department of Agriculture must have the 16 companies-signed forms by July 12, leaving just a few days for the insurers to put signatures on the latest Standard Reinsurance Agreement, which cuts the federal program by $6 billion over the next 10 years.
Crop Insurers Signing on to Contract With $6 Billion in Cuts; Agents Object to Caps
This week, U.S. crop insurers will have to sign the latest long-term contract with the federal government — a deal that slashes billions from the long-standing public-private partnership. The U.S. Department of Agriculture must have the 16 companies-signed forms by July 12, leaving just a few days for the insurers to put signatures on the latest Standard Reinsurance Agreement, which cuts the federal program by $6 billion over the next 10 years.
Crop insurance industry – ‘hands tied’
The crop insurance industry and the program will withstand the $6 billion reduction in funding handed to them by the USDA’s final Standard Reinsurance Agreement (SRA) contract released June 29. Companies have until July 12 to sign the agreement. “Our hands are tied,” said Bob Parkerson, president of National Crop Insurance Services. “The companies have no choice but to sign this SRA because, if they don’t, they cease operating and the safety net that America’s farmers and ranchers rely on so heavily would be disrupted.”
Crop insurance companies offered a new reinsurance agreement
USDA Risk Management Agency Administrator Bill Murphy said June 30 that his agency has sent crop insurance companies a revised final offer of a new standard reinsurance agreement and gives the companies until July 12 to sign it. The original deadline was June 30. After a Senate Agriculture Committee hearing Murphy said that he had made concessions to the companies on the structure of the agreement, but not made any changes in the proposal to cut $6 billion in the program or to put restrictions on agent commissions.
Crop Insurers Will ‘Withstand’ Severe Subsidy Cuts
Crop insurers said late Thursday the industry and the crop insurance program will be able to “withstand” the severe cuts in subsidies imposed on the program by the Agriculture Department. “Our hands are tied. The companies have no choice but to sign this new Standard Reinsurance Agreement,” said Bob Parkerson, president of National Crop Insurance Services, which represents the 16 crop insurers involved in the program. “If they don’t, they cease operating and the safety net that America’s farmers and ranchers rely on so heavily would be disrupted,” he said.
Crop Insurers Will ‘Withstand’ Severe Subsidy Cuts
Crop insurers said late Thursday the industry and the crop insurance program will be able to “withstand” the severe cuts in subsidies imposed on the program by the Agriculture Department. “Our hands are tied. The companies have no choice but to sign this new Standard Reinsurance Agreement,” said Bob Parkerson, president of National Crop Insurance Services, which represents the 16 crop insurers involved in the program. “If they don’t, they cease operating and the safety net that America’s farmers and ranchers rely on so heavily would be disrupted,” he said.
Vilsack proposes crop insurance cuts
Will a $4 billion cut in the cost of crop insurance in 10 years be enough for Agriculture Secretary Tom Vilsack to fight off pressures within the Obama administration to make other cuts in USDA programs? That seems to be the question after Vilsack’s release of a crop insurance reform proposal that seems intended to satisfy internal Obama administration pressures to reduce the deficit and allay concerns on Capitol Hill that any cuts in crop insurance will reduce the baseline for the 2012 farm bill.
Crop insurers acquiescing to cuts
The nation’s 16 crop insurance companies are likely to agree to the Obama administration’s spending cuts in order to keep selling the policies, an industry representative says. Several companies are insisting on technical changes to the agreement that the firms must sign to provide the insurance, said Bob Parkerson, president of National Crop Insurance Services, an industry trade group. But, he also said, “I will assure you that everybody plans on moving forward to try and bring this program to the farmers and ranchers in the Untied States.”
Crop Insurance Industry Disappointed With USDA Agreement
The crop insurance industry is surprised that even after repeated requests by Congress, producers and the Industry, the Administration still plans to cut the crop insurance program by $6 billion over the next ten years. USDA’s Risk Management Agency released its final draft of the Standard Reinsurance Agreement this month. “We negotiated this contract in good faith with USDA and we are frustrated that our concerns for the financial stability of this 30-year program were not adequately addressed,” said Bob Parkerson, President of National Crop Insurance Services.
Crop Insurers Hope to Convince USDA to Backtrack on Insurance Pact
The group that represents U.S. crop insurers is preparing for a June 18 meeting with officials of the U.S. Department of Agriculture to hash out some disagreements over the latest draft of the Standard Reinsurance Agreement — a draft the federal officials are calling final but that the insurers said they feel blindsided by. The National Crop Insurance Services — the Kansas-based association representing the insurers — said there are provisions in the long-negotiated agreement that they hadn’t seen before. “We are a little astounded by the fact that they’re calling this third draft a final draft.,” said Robert W. Parkerson, the association president. “There are several items in there that we never discussed.”
Crop Insurers Hope to Convince USDA to Backtrack on Insurance Pact
The group that represents U.S. crop insurers is preparing for a June 18 meeting with officials of the U.S. Department of Agriculture to hash out some disagreements over the latest draft of the Standard Reinsurance Agreement — a draft the federal officials are calling final but that the insurers said they feel blindsided by. The National Crop Insurance Services — the Kansas-based association representing the insurers — said there are provisions in the long-negotiated agreement that they hadn’t seen before. “We are a little astounded by the fact that they’re calling this third draft a final draft.,” said Robert W. Parkerson, the association president. “There are several items in there that we never discussed.”
Agent Groups Join NCIS Criticism Of Crop Insurance Program Cuts
Agent associations have joined the National Crop Insurance Services’ (NCIS) criticisms of the Obama administration’s decision to cut the federal crop insurance program by $6 billion over the next 10 years. Two national agent associations said today that the cuts could have negative effects on the future of the program. The U.S. Department of Agriculture said last week that $2 billion of the planned cuts will be used to “strengthen successful, targeted risk management and conservation programs,” and the remaining $4 billion will go to reduce the national deficit.
Crop insurance agreement released
Aiming to reform the federal crop insurance program, reduce the federal deficit, and maximize taxpayer dollars, the USDA has released the final draft of a new crop insurance agreement and, as a result, $6 billion in savings. Two-thirds of the savings will go toward paying down the federal deficit, and the remaining third will support high priority risk management and conservation programs. By containing program costs, these changes will also ensure the sustainability of the crop insurance program for America’s farmers and ranchers for years to come. USDA’s Risk Management Agency (RMA), which administers the federal crop insurance program, released the final draft version of a new Standard Reinsurance Agreement (SRA), which details the new terms, roles, and responsibilities for both the USDA and insurance companies that participate in the federal crop insurance program.
Latest draft of crop insurance agreement cuts $6 billion, invests in deficit reduction and CRP
The U.S. Department of Agriculture released the third and final draft of a new agreement with the nation’s crop insurance industry today, which includes $6 billion in cuts. About $4 billion of those savings will be directed to deficit reduction, while the remaining $2 billion will be invested in expansion of the Pasture, Rangeland, and Forage program; providing a performance discount or refund for qualified producers; increasing Conservation Reserve Program (CRP) acreage to the maximum authorized level of 32 million acres, investing in new and amended Conservation Reserve Enhancement Program initiatives; and investing in CRP monitoring.
Final draft crop insurance agreement
Aiming to reform the federal crop insurance program, reduce the federal deficit, and maximize taxpayer dollars, the USDA has released the final draft of a new crop insurance agreement and, as a result, $6 billion in savings. Two-thirds of the savings will go toward paying down the federal deficit, and the remaining third will support high priority risk management and conservation programs. By containing program costs, these changes will also ensure the sustainability of the crop insurance program for America’s farmers and ranchers for years to come.
Final draft crop insurance agreement
Aiming to reform the federal crop insurance program, reduce the federal deficit, and maximize taxpayer dollars, the USDA has released the final draft of a new crop insurance agreement and, as a result, $6 billion in savings. Two-thirds of the savings will go toward paying down the federal deficit, and the remaining third will support high priority risk management and conservation programs. By containing program costs, these changes will also ensure the sustainability of the crop insurance program for America’s farmers and ranchers for years to come.
2012 Farm Bill Issues
After additional examination, Mr. Lehner stated that, “[A]n aphorism closer to home says farm policy only changes when farmers are unhappy and crying for change. The House Ag Committee members who sat through the hearings have heard cries for change, but mostly for more spending, not less: Raise loan rates. Make ACRE county-based. Subsidize fruits and vegetables. “Crop insurance cuts are under discussion, but farm groups oppose them. Payment limitations would be popular with the general public, but Peterson dislikes them, as do many farmers. “Direct payments defy the ‘safety net’ logic underlying farm programs, as they’re paid in good times and bad alike, to absentee landowners in New York as well as those who sow and reap, but many farmers swear by them — and unlike some of our other farm programs, they’re WTO-legal. You could dress them up as compensation for providing public goods like clean air and water, but the chairman doesn’t like that idea, either.
Proposed cuts to crop insurance could hit state
Proposed cuts to federal crop insurance totaling nearly $7 billion have the potential to reduce services and various safety measures for farms and wineries throughout the state, particularly in the North Bay, according to insurers and the Crop Insurance Professionals Association. As a means of paying for some of the USDA’s other projects, the Risk Management Agency arm of the federal agency has proposed the roughly 35 percent cuts to the private delivery system that ensures some level of protection for farms across the country.
Farmers: Strengthen crop insurance in next farm bill
During the recent U.S. House Committee on Agriculture field hearing in Lubbock, several West Texas farmers who gave testimony expressed a need to strengthen federal crop insurance when the next farm bill is written. The ag committee had its seventh in a series of hearings on the Texas Tech University campus to review U.S. agriculture policy as the committee begins the process of writing the 2012 Farm Bill. Ronnie Holt, a cotton, corn and grain sorghum farmer from Muleshoe, serves as chairman of the Crop Insurance Professionals Association. In his testimony, Holt’s plea was to strengthen crop insurance, “a particularly timely request in the wake of the U. S. Department of Agriculture’s efforts to slash crop insurance investments by billions — a proposal that has been widely criticized by Congress and the agricultural community.”
WINDMILL COUNTRY: Farmers call crop insurance vital
During the recent U.S. House Committee on Agriculture field hearing in Lubbock, several West Texas farmers who testified expressed a need to strengthen federal crop insurance when the next farm bill is written. The ag committee had its seventh in a series of hearings on the Texas Tech University campus to review U.S. agriculture policy as the committee begins the process of writing the 2012 Farm Bill. Ronnie Holt, a cotton, corn and grain sorghum farmer from Muleshoe, serves as chairman of the Crop Insurance Professionals Association. In his testimony, Holt’s plea was to strengthen crop insurance, “a particularly timely request in the wake of the U.S. Department of Agriculture’s efforts to slash crop insurance investments by billions — a proposal that has been widely criticized by Congress and the agricultural community.”
Farmer-friendly SRA alternatives
In a letter to U.S. farm organizations, crop insurance agents released an alternative to the massive crop insurance funding cuts—ranging from $8.4 to $6.9 billion—recently proposed by the U.S. Department of Agriculture. “What has been missing from this negotiation is a focus on what benefits the farmer,” said Ronnie Holt, Chairman of the Crop Insurance Professionals Association (CIPA), the group of independent agents that wrote the letter.
Crop-insurance cuts would hit farmers
A little-known debate is going on in Washington, D.C., regarding crop insurance. Farmers across Iowa rely on their crop insurance policies to weather unexpected storms. Without such coverage, many of them would be hard pressed to secure the loans needed run their operations. Unfortunately, crop insurance is facing $7 billion in cuts that would take money and jobs directly out of thousands of Iowa communities; that could undermine insurance delivery to the men and women who grow America’s food, fiber, and fuel; and that in Washington would deal a blow to the agricultural budget as we head into the 2012 farm bill. These cuts would hit Iowans hard.
The search is on for better safety net in 2012 farm bill
House Agriculture Committee Chairman Collin Peterson (D-MN) wants to craft a better safety net for crop and livestock producers, but he faces an uphill battle on several fronts–cost, structure, actuarial soundness, delivery system, and producer attitudes, just to name a few. Still, he remains convinced that it might be possible to develop a more efficient system and perhaps even save some money in the process. During a series of farm bill field hearings this month, Peterson talked about developing a crop insurance system that covers all crops and suggested that one of the ways to do that is to eliminate spending on catastrophic (CAT) coverage and the noninsured crop assistance program (NAP). “We could pick up a lot of revenue by eliminating CAT coverage. It gives us extra money to fix the system,” Peterson explained.
The search is on for better safety net in 2012 farm bill
House Agriculture Committee Chairman Collin Peterson (D-MN) wants to craft a better safety net for crop and livestock producers, but he faces an uphill battle on several fronts–cost, structure, actuarial soundness, delivery system, and producer attitudes, just to name a few. Still, he remains convinced that it might be possible to develop a more efficient system and perhaps even save some money in the process. During a series of farm bill field hearings this month, Peterson talked about developing a crop insurance system that covers all crops and suggested that one of the ways to do that is to eliminate spending on catastrophic (CAT) coverage and the noninsured crop assistance program (NAP). “We could pick up a lot of revenue by eliminating CAT coverage. It gives us extra money to fix the system,” Peterson explained.
Ag. Commissioner Farmer Urges Farmers Affected By Flooding To Seek Relief
Agriculture Commissioner Richie Farmer said Thursday that Kentucky farmers may be able to utilize federal relief programs to get help for farm-related losses incurred since April 30 as a result of severe storms, flooding, mudslides, straight line winds and tornadoes. “Kentucky farmers have lost thousands of acres of crops, and some had farm equipment and fences damaged,” Farmer said. “I want them to know they are not alone. There are several programs available through the Farm Service Agency to assist them in their recovery.”
Severe weather emphasizes need for strong crop insurance program
It was a bit ironic that farmers from Plainview and the surrounding area saw storm clouds in their rearview mirrors as they drove to Lubbock for Monday’s House Ag Committee Field Hearing. Much of the concern expressed by those who gave testimony as the committee begins its work on the 2012 Farm Bill revolved around disaster relief and crop insurance. As if setting the stage for the discussion, a severe storm blew across the area, bringing high winds, hail and heavy rain. Area experts said it still is too early to know how much damage was caused by the storm, but there is no arguing that damage probably is out there.
Direct Aid Program For Farmers Opposed By Crop Insurers
Officials from the crop insurance industry are voicing opposition to a proposal by an Iowa State University professor that the current system be replaced with a direct subsidy program. In testimony Friday before the House Agriculture Committee at a hearing on the proposed 2012 farm bill, Professor Bruce Babcock proposed the direct subsidy program as less costly than the current system. The professor said he believes that providing revenue protection to farmers from systemic risk by using an area-based revenue plan would be far less expensive than the current system. But officials of the National Crop Insurance Services, Overland Park, Kan., the trade group for the private insurers that operate the program, criticized Professor Babcock’s proposal.
National Crop Insurance Services
8900 Indian Creek Parkway, Suite 600
Overland Park, KS 66210-1567
Phone: 913-685-2767