HTML _ IB10033 - Federal Crop Insurance Reform Issues in the 106th Congress
22-Sep-2000; Ralph Chite; 18 p.

Abstract: On May 25, 2000, the House and Senate gave final approval to legislation (H.R. 2559) that will reduce significantly the farmer cost of acquiring a crop insurance policy. The President is expected to sign the measure soon. The conference agreement will require $8.2 billion in new federal spending for the crop insurance program over the next 5 years, in an attempt to attract more farmers into the program and lessen dependence on ad hoc disaster assistance. The federal government has spent an average of $1.5 billion per year on crop insurance since 1994. The government pays the full cost of the premium for catastrophic (CAT) coverage and pays a portion of the premium for higher levels of coverage. Private insurance companies sell and service the policies, but are reinsured by the government for most of their losses and expenses. Major reforms were made to the crop insurance program in 1994 in hopes of permanently replacing expensive ad hoc disaster payment programs with a more heavily subsidized crop insurance program. However, the enactment of multi-billion dollar farm financial assistance packages in both FY1999 and in FY2000 encouraged consideration of additional modifications. Some were opposed to providing any new funding to crop insurance because of concerns that such subsidies encourage farmers to overproduce and bring environmentally fragile land into production. Overall farmer participation in the program has increased in recent years, but participation rates for levels of coverage beyond the CAT level, have not changed significantly. Several farm and insurance industry groups identified a number of factors that they perceive inhibit participation. The approved conference agreement on H.R. 2559 addresses many of these perceived problems. The vast majority of the new spending authorized by the bill will be used to increase the portion of the premium paid by the government on behalf of the producer for coverage higher than the CAT level, and to subsidize a portion of the additional cost of revenue insurance products for the first time. Among its many other provisions, the conference agreement also provides improved coverage for farmers affected by multiple years of natural disasters; authorizes pilot insurance programs for livestock farmers, gives the private sector greater representation in policymaking; and eases eligibility requirements for a permanent disaster payment program for noninsurable farmers. The final FY2001 budget resolution (H.Con.Res. 290) served as the source of funds for the new spending required by the crop insurance conference agreement. The resolution permitted new agricultural program spending of $8.2 billion over the FY2001-05 period for modifications to the federal crop insurance program. Separately, H.Con.Res. 290 also contained a reserve fund of $7.14 billion to provide emergency farm financial assistance for FY2000 and FY2001, in response to continued low farm commodity prices. A separate title (Title II) authorizing this funding was included in the conference agreement on H.R. 2559. [read report]

Topics: Agriculture, Risk & Reform, Economics & Trade

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