What is important to know is how much premiums are subsidized, which varies widely with the amount of coverage purchased.
The economists say, “The subsidy rates are 64 percent of the premium for 60 percent coverage, 59 percent for 65 and 70 percent coverages, 55 percent for 75 percent coverage, 48 percent for 80 percent coverage and 38 percent for 85 percent coverage. Under a provision in the 2008 farm bill a producer can also obtain a higher subsidy rate, up to 80 percent, at a particular coverage level by insuring all acres of a particular crop on the farm as a single, aggregate ‘enterprise unit.’ Participation in enterprise units has become widespread since this subsidy modification.”
For the typical Corn Belt farm, the economists conclude that most farmers would reduce their individual crop insurance coverage to a slightly lower level, and pick up the county-based additional coverage.
They say, “For corn and soybeans, the individual-level coverage level would drop to 75 percent for most representative farms in the Corn Belt when the county-level supplemental coverage is used. These switches in coverage levels at the farm-level suggest that the farm-level revenue is strongly correlated with the county-level revenue because of relatively strong correlation between farm and county yields.”
The shallow loss program is designed to reduce the large impact of a deductible in case farmers purchase crop insurance below the maximum level. However, the supplemental coverage has a lower cost, since it is county-based.
As a result of the provisions, the shallow loss coverage may result in farmers buying lower levels of insurance coverage for their farm. Since the ARC and RLC programs are pending in the House and Senate, respectively, and are quite comparable to each other, one form or another or a blend is quite likely to be included in the Farm Bill. Farmers should quickly learn how the programs work, because they will probably be a choice offered at the FSA office for the 2014 crop.