Prior to the crop insurance reforms of 2000, Section 518 of the Federal Crop Insurance Act specifically excluded livestock from the list of commodities eligible for crop insurance. This meant that a large portion of the agriculture sector did not have access to risk-management tools that would better allow them to protect themselves from fluctuations in the market.
Livestock has usually been at least 50 percent of all agricultural receipts in the United States. Although livestock producers have indirectly benefited from the traditional price-support and commodity-based crop insurance programs that support the production and price of feed grains, they did not have the opportunity to purchase insurance to cover livestock production or products.
With passage of the Agriculture Risk Protection Act of 2000 (Public Law 106-224) a number of underlying issues relating to crop insurance and the utilization of risk-management tools such as futures and options were addressed. This legislation (otherwise known as ARPA) removed the exclusion on livestock and changed the process by which the Risk Management Agency (RMA) is allowed to develop and maintain insurance pilot programs. Section 131 of the Act now prohibited the Federal Crop Insurance Corporation (FCIC), which is administered by the RMA, from conducting research and development for any new policies for agricultural commodities. Rather, ARPA required that new product development be accomplished through contracts or partnerships with outside entities.
The legislation also allowed organizations and private companies to develop new policies at their own expense and request reimbursement from the FCIC after products are approved and reach a certain level of marketability. During consideration of ARPA the intent of Congress was to encourage the development of innovative production, price, and/or revenue insurance plans for livestock producers with reasonable protection from the financial risks of price or income fluctuations inherent in the production and marketing of livestock. As noted previously, the exclusion on offering livestock insurance policies was removed under this Act and it cleared the way for private companies to submit products to RMA for approval on a pilot basis that are tailored specifically to livestock production and products.
Although funding levels and downward budgetary pressure will dictate the pace of growth for risk-management tools for the livestock sector, it is clear there is an ongoing trend in federal agricultural policy toward a market-orientation in managing risk. Traditionally, livestock has been a sector of production agriculture that has received a minimal amount of price and income support from the federal government. This is a primary reason why the issue of enhanced risk-management tools for livestock producers continues to play a prominent role in policy debates.
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