New budget deal could hit crop insurance with cuts

New budget deal could hit crop insurance with cuts

News that there may be a long term deal on the budget sounded good until ag groups got a look at the fine print.

It looks like making a budget deal means tinkering with the farm bill. At least that’s what it looks like to commodity groups and others involved with agriculture. The day after USDA announces it will make payments to farmers in the Agriculture Risk Coverage or Price Loss Coverage programs, there’s news that the budget deal could tinker with crop insurance.

That new budget deal from Congress may not be such a good idea for crop insurance.

The deal includes a proposed cut in crop insurance support of $3 billion according to a release from the American Soybean Association. The group is calling on Congress to oppose any reopening of the 2014 Farm Bill. This is a bill that was hard enough to get passed in the first place, so opening it up for tweaks is rankling those involved.

In that press statement, Wade Cowan, ASA president, points out that ag was the only industry segment that came forward and accepted spending reductions. “ASA absolutely opposes any efforts by Congress to reopen any part of the farm bill as part of budget negotiations, and we implore lawmarkers to reject any attept to target crop insurance or any other farm bill programs for further cuts,” he says.

Cowan points out that the U.S. farm economy is not in the same shape it was just three years ago “when we began the process of writing the farm bill. Crop values are down almost 50%, and our farmers face volatile weather ranging from flooding in the Carolinas to drought in Texas and fires in California. Farmers need a strong safety net, not a weaker one.”

The Crop Insurance and Reinsurance Bureau responded to the news with a statement noting that the budget deal’s proposed cuts to crop insurance “would be devastating.” The group notes that the program has already sustained $12 billion in cuts since 2008 and the new proposal would “cripple that partnership and with it, the rural economy.”

The group notes that the cuts were “airdropped without being proposed – let alone considered – by Congress.”

The budget agreement, which aims to end the need to vote on a debt ceiling increase until 2017 (after the next Presidential election), would also offer up $80 billion in discretionary funds for defense and other programs. To pay for this there are proposed cuts to entitlement programs through rule changes and lower payments, but also apparently cuts to crop insurance as well. To make those cuts the farm bill title would have to be reopened.

The cuts also could increase premiums and discourage providers from participating in Federal Crop Insurance, according to Cornell assistant professor of agricultural business and finance, Joshua Woodard.

Reducing the subsidy on revenue insurance coverage products with harvest price protection from the current level of approximately 60% to 50% would mean an increase in farmer paid premiums on those products by about 25%, and probably similar reductions in farmer buy-up, Woodard said.

In addition, the changes in the crop insurance program have made it less profitable for private insurers. "Further reductions in farmer participation on top of that, coupled with a capping of company returns as in the proposal, could very well lead to more companies exiting the market," Woodard added.

Updated 10/28

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