Not all that many years ago, crop insurance was only for the faint-hearted, or farmers whose farmland flooded or burned up without fail every year.
Few farmers signed up, in part, because it was expensive and there was rarely any return on their investment. Then Crop Revenue Coverage came along, with an attractive price and the improved opportunity to recoup one’s investment. Then USDA’s Risk Management Agency created new and improved crop insurance policies that ended up being guaranteed income and the majority of farmers were signing up. But now, with crop insurance being part of the family, and a routine decision that is widely endorsed by lenders, the Congress is considering imposing restrictions on its use to limit the type of farmers which have access to it. And there could be some unintended circumstances.
With the demise of direct payments as a part of the agricultural safety net, Congress is moving that responsibility to crop insurance. That is the only safety net in the proposal the House Ag Committee will be presenting. And in the Senate, crop insurance will be joined with a program call “ARC” that will ease the deductible by 6-8%. But crop insurance will be the workhorse in the 2012 Farm Bill as far as commodity programs are concerned.
But Congress has overhauled the administration of the program over the past few years, reducing its partnership with insurance carriers, while increasing the subsidy of premiums paid by farmers, as a means of attracting more to the program.
With a majority of farmers using the program to help manage their risk, and the program becoming more sustainable because of the larger pool of farmers paying premiums, the Congress is considering some major restrictions to limit farmer access and use of the program. Kansas State University ag economist Art Barnaby has outlined several of those restrictions.
One is a $40,000 maximum subsidy that farmers could receive on crop insurance. As outlined in the May 28th edition of Farmgateblog, once a farmer received $40,000 in benefits from subsidized premiums, he would have to pay the full premium, which could be the other 50-60% of the cost of the premium. That might be hit at the 50 acre mark for an operation with high value fruit or vegetable crops, or it might be the 1,700 acre mark for a dry land wheat farmer. Barnaby says it is a significant restriction with many unintended consequences for Congress.
Barnaby uses the same comment for another amendment being proposed in Congress for the 2012 Farm Bill, which would prohibit the ability to purchase crop insurance if your adjusted gross income (AGI) exceeded $750,000.