RDL & Associates Commentary: Federal Crop Insurance

Over the past two decades crop insurance has become an integral part of the risk-management strategy for an increasing number of producers.  Since 1994 the percentage of producers utilizing crop insurance to manage risk has grown from 33% to approximately 80%.  As these producers continue to face higher input costs, risk management tools such as crop insurance continue to be a critical component of their marketing plan.  Crop insurance protects a producer’s yield and price, as well as providing collateral and a repayment source for operating loans, term loans for machinery, livestock, facilities and real estate loans.

Going forward, a vibrant crop insurance program will be at the heart of the farm safety net and it is critically important that our producers have access to strong risk-management tools – including a viable crop insurance program.   As producers have shifted to protecting income rather than yield, the enhanced coverage provided by higher levels of revenue policy coverage has meant significantly greater protection for the producer’s revenue stream.  Since most producers cannot afford not to have some type of protection, it is likely their profit margins would be further reduced if premiums are raised.  Furthermore, absent a viable crop insurance program, many young and beginning producers (who traditionally have less collateral and equity) would face additional challenges in obtaining financing.

It is worth noting that the 2008 Farm Bill included reductions to the crop insurance program of approximately $6 billion over a 10-year period and that the current Standard Reinsurance Agreement included an additional $6 billion in estimated funding reductions the crop insurance program over 10 years.  It is important that policymakers take these spending reductions under consideration as they work to craft a fiscally responsible 2012 Farm Bill that will enhance, rather than limit, risk-management choices for producers.

Copyright © 2012 RDL & Associates, LLC.  All rights reserved.

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