February 23, 2020

Farm Bill; Ag Economy; CFTC; and Budget Deal Reached

Farm Bill: Budget and Policy Issues- Crop Insurance

The Washington Insider section of DTN reported yesterday (link requires subscription) that, “Some observers have been surprised that the administration’s proposal for changes in the crop insurance program have become a major storm, but they shouldn’t be. The program is big and important, and the administration’s proposal is complex and based on several assumptions.”

The DTN update indicated that, “While the [crop insurance] program is run through USDA’s Risk Management Agency, policy sales and servicing are done through private firms under contracts that guarantee a negotiated ‘return on investment.’ This deal is hammered out with the companies through a painful process most recently redone in 2010.

“Still, USDA thinks, and, has long thought, that the subsidies involved are still unnecessarily high, based on more recent estimates, it says. The program costs the government approximately $8 billion a year now, including $2.3 billion per year for the private insurance companies to administer and underwrite the program and $5.7 billion per year in premium subsidies for farmers.

“In the 2010 rewrite, USDA and the companies agreed to changes credited with saving $6 billion over 10 years —reductions that USDA says were not cuts to the programs. Now, it believes it has found additional ways to shrink administrative costs. Lowering its partner-companies’ returns on investment to a 12% target would save $2 billion over 10 years, USDA thinks, with no loss of program effectiveness.”