FARGO, N.D. - The big federal ad hoc disaster programs for weather and trade and weather damage in 2019 could have heavy political consequences for crop insurance as budget hawks attack the "farm safety net," a top crop insurance advocate says.
Tara Smith is vice president of federal affairs for the Crop Insurance and Reinsurance Bureau, Inc., a trade association that represents AIPs (Approved Insurance Providers) and reinsurers that give them financial backing. She spoke to about 225 crop insurance professionals at an annual Crop Insurance Conference, hosted by the North Dakota Extension Service on Jan. 13, at the Fargo Holiday Inn.
"One of the comments we get a lot, is, 'I thought crop insurance was supposed to care of this," Smith said.
Before 2019, crop insurance had evolved into the "cornerstone" of the so-called "farm safety net." In the 1990s, revenue-based crop insurance policies were created, replacing yield-based insurance.
In 1999, the Congress passed the Agriculture Risk Protection Act. Signed by President Bill Clinton in 2000, it created new, revenue-based insurance with higher premium discounts for farmers, with increased government subsidy.
Part of the rationale for beefing up crop insurance was to reduce the need for "ad hoc" assistance, such as the disaster payments in 2019. Until last year, the crop insurance system worked, with federal outlays at $7 billion to $9 billion a year.
But the Market Facilitation Program payments of $12 billion in 2018 and $16 billion in 2019, marked a dramatic change. The MFP payments were designed to offset the retaliation of China and the European Union in the wake of tariffs imposed by President Donald Trump, and their disproportionate impact on grain farmers, who had heavily exported commodities and products to China and the EU.
"Crop insurance was never designed to protect against a trade war," Smith said. "Crop insurance only covers in-year losses on prices. Crop insurance doesn't cover those multi-year price declines."
The crop insurance price guarantee is set at the beginning of a season. If there isn't a drop in price during that season, then crop insurance revenue protection isn't going to kick in, she said.
In addition to the hefty MFP payments, Congress passed $3 billion in ad hoc disaster aid to help farmers in 2018 and $4.5 billion for ad hoc disaster in 2019. "We hadn't seen that sort of ad hoc aid for the ag sector in well over a decade," Smith said.
Doing its job
In the past decade, crop insurance has filled this function well, including years like 2012 when there was no ad hoc assistance, but crop insurance provided all of the protection. "It did its job, and then you look forward to much better years," Smith said.
Politically, crop insurance needs to "prepare itself for cuts"
Smith said crop insurance needs to put itself forward as the "best option" to "continue to be the cornerstone" of a farm income safety net. In the next couple of years, crop insurance proponents need to address "gaps" in a way that's actuarially sound.
Prevented-planting crop insurance policies functioned as planned 2019, during a time of an ad hoc disaster bill and a Trump tweet about trade aid.
"The one thing the farmer could take to the bank was that they knew what their prevent-plant payment was going to be," Smith said. A farmer typically within 30 days of logging a loss is going to have an indemnity check from crop insurance. The MFP and ad hoc disaster payments are subject to administration actions and delays.
Smith said a normal turnover in Congress creates a need to constantly educate new members about the virtues of crop insurance, Smith said. Retirements are on-pace to be a record high.
Reps. Glenn "G.T." Thompson, R-Pa.; Austin Scott, R-Ga.; and Rick Crawford, R-Ark., have all expressed interest in moving into the ranking minority spot, to replace Rep. Mike Conaway, R-Texas, who is retiring in 2020.
Rep. Collin Peterson, D-Minn., is facing a re-election challenge in Seventh District, whose boundaries could change. Behind Peterson among Democrats on the committee are David Scott, D-Ga.; Jim Costa, D-Ca. The committee has a number of freshmen who Smith said are distinguished by a passion for food programs that a part of the farm bill, which expires Sept. 30, 2023. "Realistically we'll be writing a farm bill in 2022," Smith said.
She urged the crop insurance industry people at the conference to get involved politically. She asked them to participate in group message efforts, and to contact congressional members through facebook pages and Twitter, as well as through phone calls and letters.
Historically, farmers in the South were less supportive of crop insurance because farmers there used crop insurance less. But that's changed as Southern participation in crop insurance has grown in the wake of specialized programs for cotton farmers and rice farmers. Also, the crop mix in the South has shifted toward corn and soybeans that have strong crop insurance products.