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Crop Insurance/Disaster Relief . Federally subsidized crop insurance Actual Production History (APH) Most recent 10 years of actual yield histories Multiple-Peril Crop Insurance Various causes of loss Federal Crop Insurance Corporation (FCIC) Passed in 1938

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crop insurance disaster relief
Crop Insurance/Disaster Relief
  • Federally subsidized crop insurance
    • Actual Production History (APH)
      • Most recent 10 years of actual yield histories
    • Multiple-Peril Crop Insurance
      • Various causes of loss
    • Federal Crop Insurance Corporation (FCIC)
    • Passed in 1938
    • Has been repeatedly changed since then
  • Long History of providing Ad hoc Disaster Assistance
    • Political

26

background
Background
  • Insurance in agriculture has traditionally been crop yield insurance
    • Multiple peril (weather, fire, hail, wind, disease, insects, earthquake, and wildlife)
    • Based on:
      • historical producer yields
      • coverage level chosen (% of APH)
    • FCIC determined/developed market price converts losses into dollars
slide3

Background

  • Participation in Crop Insurance Program
      • 1980 – 10% of eligible acres
      • 1999 – 70% of eligible acres
slide4

Background (Cont.)

  • Insurance designed to provide protection against substantial losses
    • Deductible works like car insurance
    • Most common coverage in Texas has been at the 65% level [maximum government subsidy] except cotton (50%)
    • Higher levels of coverage have been cost prohibitive
slide5

Current Insurance Alternatives

  • Actual Production History (APH)
  • Catastrophic Coverage (CAT)
  • Group Risk Plan (GRP)
  • Crop Revenue Coverage (CRC)
  • Income Protection (IP)
  • Group Revenue Insurance Policy (GRIP)
  • Adjusted Gross Revenue (AGR) - schedule F
  • Revenue Assurance (RA)
  • Pilot Programs:
    • Livestock
    • Fruits and vegetables
slide7

Producers Hate

Crop Insurance

  • Southern Producers
    • “Doesn’t pay”
    • “Premiums too high relative to indemnities”
  • Midwest Producers
    • “My premiums subsidize producers in marginal areas”There is truth to both points of view
slide8

Is There Friction?

“There are certain parts of the country that have acres that are challenged by weather and farm practices that are not up to what they should be ...

the two Texans who lead the House Agriculture Committee come from such districts and have been joined by others in supporting crop insurance”Senate Agriculture Committee Chairman Richard Lugar (R-Ind.) October 19, 1999

slide9

Comparison of Loss Ratios

for Selected States and

Commodities, 1998 & 1999

agricultural risk protection act of 2000
Agricultural Risk Protection Act of 2000
  • Major increase in subsidy levels
  • Revenue policies receives a percentage of premium assistance equal to APH
  • Yield history adjustments for catastrophic years
    • Substitute 60% of t-yield for actual yields less than 60% of t-yield
    • Only applies to yield guarantee, premium still based on actual yields
  • Administrative fees:
    • CAT – from $60 per crop per county to $100
    • Buy up – from %calculation to $30 per crop per county
    • Fees waived for limited resource farmers
  • Programs for livestock
  • The cost of production as price election
  • Premium discounts for good performance
  • “Beefs up” efforts to combat fraud
realities
Realities
  • Crop insurance provides incentive to produce in high risk areas
  • Ad hoc disaster assistance undermines crop insurance program
    • Incentive not to purchase insurance
  • Have had to increase subsidy