Crop insurance changes in budget bill

WASHINGTON — Several provisions specific to crop insurance that the industry pushed for were included in the budget reconciliation package that Congress recently approved.

Tara Smith, Crop Insurance and Reinsurance Bureau deputy executive vice president, and Scott Graves, American Association of Crop Insurers president, provided their views on the new spending package in a podcast hosted by Thomas Zacharias, National Crop Insurance Services president.

This bill extends benefits for beginning farmers and ranchers from five years to 10. Enhanced premium support starts at 15% in the first year and gradually decreases annually to reach 10% by year five, remaining at 10% through year 10. That could be a big win for the next generation of farmers. Could you explain why this change was made and what impact it will have?

Smith: That provision really came to be originally in the 2014 farm bill. I was on a committee during the development of that bill. The idea came to us from a former Risk Management Agency administrator who thought this was going to be a good way to help beginning farmers transition and really build up their crop insurance policy in a way that was going to help them manage risk best.

So, what they’re doing in the reconciliation package is really a pretty logical evolution. It’s a realization that if you’re a beginning farmer, five years may not be quite enough to get yourself fully established. Agriculture may take a little bit longer than that to get yourself really fully rooted, and so this extends those benefits.

I know that the reconciliation package was a very partisan package, but to be honest with you the beginning farmer and rancher provisions are really bipartisan and had a lot of support, not just from farmers, but from industry, as well. So, we’re excited it got included.

This bill also improves affordability for area-based policies by raising the maximum coverage level for the Supplemental Coverage Option and Whole-Farm Revenue Protection to 90%. Can you explain what that means and why it’s significant from a policy and farmer adoption standpoint?

Smith: It does expand it. It also makes those policies more affordable, and over the last several years we’ve seen crop insurance really expanded. We’ve seen adoption increase.

We’ve done a lot of great things in crop insurance over the last decade, two decades, to reach new farmers into new areas and meet them where they are and provide them with the kind of risk management tools that they need.

But what we have also seen is that affordability in some places, at those high buy-up levels, has still been difficult to achieve. So, what we’ve seen, particularly since 2018, is a lot of ad hoc disaster packages that have passed to try to fill that gap.

This provision really tries to make those higher levels of coverage a little bit more affordable for farmers in hopes that it will help ease the need for ad hoc assistance moving forward.

This package included some notable updates to administrating and operating expenses. Can you describe what these administrative and operating expenses are and what changes are being made to them?

Graves: It makes some important changes. I think the policies put forward recognize the changes, delivery and the nature of the program, and it’s going to assist in filling the gap.

With it being adjusted for inflation, hopefully it’s able to continue to keep up with a changing nature of everything around us that we’re not necessarily in control of.

Let’s now shift to compliance and integrity, a topic we take very seriously in crop insurance. The bill provides millions of new funding, $4 million through 2025 and $6 million annually after for program compliance. How do you think this will improve oversight without adding too much red tape?

Smith: First, it’s really important to note, and I can’t really overstate this, that having that really low error in crop insurance is sort of existential to the survival of the program.

I know that folks may chuckle at that a little bit, but quite frankly we’ve faced a lot of attacks in the past over error rates and the fact that the industry working collaboratively with RMA has really been able to drive down error rates in crop insurance has meant that we have a little bit more freedom to operate.

Just take a look at what happened with the Supplemental Nutrition Assistance Program in this reconciliation package. They were attacked and lost funding and went through a really stressful time in the program because of high error rates in certain states.

Keeping those error rates low, keeping us compliant with all the rules and regulations, is really a way for us to be able to continue to have the faith and the confidence of Congress and of RMA and the public in order to continue to operate the program in the best way possible for the America’s farmers and ranchers.

Along those lines, the bill also dedicates $10 million annually for policy reviews and maintaining actuarial soundness. It’s a sizable investment. What’s the industry’s take on this one?

Graves: I think it’s positive. It indicates a recognition that actuarial soundness matters and that finding a way to try and figure out that we’re able to ensure universal delivery of service among all states is really important.

This is obviously not a silver bullet solution by any means, but I think it is and it should be viewed as a positive trend with respect to trying to figure out how the private sector can sustainably continue to deliver in all states.

Zooming out for a moment, crop insurance often plays defense during budget debates. This time, we saw meaningful improvements. What do you think this says about how lawmakers and the current administration view the crop insurance program and how could these affect future policy initiatives?

Smith: It really highlights the fact that we truly are the cornerstone of risk management in the countryside. Farmers need crop insurance. In a lot of cases, farmers need more crop insurance, certainly not less crop insurance, and we’ve seen that not just from industry, but we’ve also seen the farm groups out there advocating for these enhancements for the crop insurance program.

So, I think that speaks to the public-private partnership. It speaks to sort of the gold standard that is private sector delivery of the program. It’s only more important in the current really uncertain economic environment that we’re in as farmers face more and more economic stress, things like crop insurance become more and more important.

It’s important to note that just because we won this battle, if you will, during the reconciliation package, does not mean we’re not going to have to continue to play defense.

If we move forward with a skinny farm bill, this is going to come back, and we’re going to have to defend what we just achieved in this bill.

A lot of hard work went into this bill, including the work of your staffs, and a lot of folks on Capitol Hill, along with the Trump administration, but as they all say there’s no rest for the weary. We’re now hearing discussions about a farm bill 2.0 Can you talk to us about what that package is about and how crop insurance is positioned for it?

Graves: As anybody that’s ever followed farm policy, no two farm bills and their trajectory to get past are the same, but I think most of the items we typically associate with farm bills were largely handled in the reconciliation package, which is commodities, crop insurance and SNAP.

The dust is obviously not fully settled. We’re not positive how everything will be approached, but the reconciliation bill, I should say, wasn’t able to fully extend everything. Items weren’t able to be included based on procedural measures within the Senate, and so we’re going to need to move something.

If the scope is increased to revisit crop insurance, I think we’re better positioned as an industry than we’ve ever been before. There are a lot of conversations and nuances that we’ve got to get through before we start getting very specific, but I feel very confident and I’m really happy with the trajectory of the entire industry as we move forward.