Order Code RL34207
Crop Insurance and Disaster Assistance
in the 2008 Farm Bill
Updated June 20, 2008
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Crop Insurance and Disaster Assistance
in the 2008 Farm Bill
Summary
The federal government has relied primarily on two policy tools in recent years
to help mitigate the financial losses experienced by crop farmers as a result of natural
disasters — a federal crop insurance program and congressionally mandated ad-hoc
crop disaster payments. Congress has made several modifications to the crop
insurance program since the 1980s, in an effort to forestall the demand for
supplemental disaster payments. Although the scope of the crop insurance program
has widened significantly over the past 25 years, the anticipated goal of crop
insurance replacing disaster payments has not been achieved.
Although the federal crop insurance program is permanently authorized and
hence does not require periodic reauthorization, modifications to the crop insurance
program were made in the context of the Food, Conservation, and Energy Act of
2008 (P.L. 110-246, the 2008 farm bill). Some policymakers viewed the crop
insurance program as a potential target for program cost reductions, and proposed
using these savings to fund new initiatives in various titles of the farm bill.
Consequently, many of the crop insurance provisions are cost-saving measures.
According to Congressional Budget Office estimates, the crop insurance provisions
(Title XII) in the 2008 farm bill will reduce program outlays by $3.9 billion over the
five-year period of the bill (FY2008-FY2012). Much of the savings ($2.8 billion) is
achieved through a change in the timing of crop insurance payments and receipts that
will not directly affect the final monetary amounts for participating farmers or
insurance companies. The rest of the savings is generated through increased fees
paid by farmers for catastrophic coverage and a reduction in reimbursements to the
participating insurance companies for their operating expenses, among many other
provisions. To address concerns about program waste, fraud, and abuse, the farm bill
also authorizes up to $4 million annually for data mining activities beginning in
FY2009.
Separately, Title XV of the 2008 farm bill authorizes a new $3.8 billion trust
fund to cover the cost of making agricultural disaster assistance available on an
ongoing basis over the next four years through five new programs. The largest
program is a supplemental revenue assistance payment program for crop producers
that is designed to compensate eligible producers for a portion of crop losses that are
not eligible for an indemnity payment under the crop insurance program. To be
eligible for a payment, a producer must be either in or contiguous to a county that has
been declared a disaster area by either the President or the Secretary of Agriculture.
An eligible producer also is required to have purchased crop insurance in advance of
a disaster. However, the statute makes an exception for the 2008 crop year by
allowing uninsured producers to be eligible, as long as they pay the equivalent
administrative fee for coverage within 90 days of enactment.
For a description of all crop insurance provisions in the enacted 2008 farm bill,
and a comparison of the provisions with the House- and Senate-passed versions of
the bill and previous law, see Appendix A at the end of this report.
Contents
Crop Insurance Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Crop Insurance And Disaster Provisions in the 2008 Farm Bill . . . . . . . . . . 4
Reducing Crop Insurance Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Timing of Crop Insurance Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Insurance Company Reimbursements and Loss Sharing . . . . . . . . . . . . 5
Farmer Subsidy and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Waste, Fraud, and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Agricultural Disaster Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Supplemental Crop Revenue Assistance Program . . . . . . . . . . . . . . . . . 7
Other Authorized Disaster Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Disaster Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
List of Figures
Figure 1. Crop Insurance and Disaster Payments:Total Federal Cost,
by Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
List of Tables
Table 1. Government Cost of Federal Crop Insurance . . . . . . . . . . . . . . . . . . . . . 2
Appendix A. Major Crop Insurance and Disaster Assistance Provisions
in the Enacted 2008 Farm Bill: Comparison with Previous Law and
House- and Senate-Passed Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Crop Insurance and Disaster Assistance
in the 2008 Farm Bill
Agriculture is generally viewed as an inherently risky enterprise. Farm
production levels can vary significantly from year to year and by location, primarily
because farmers operate at the mercy of nature, and frequently are subjected to
weather-related and other natural disasters. Since the Great Depression,
policymakers have decided that the federal government should absorb some portion
of the weather-related production losses that otherwise would depress farm income
and could alter farmers’ decisions about what to produce in some high-risk locations.
Federal crop insurance is the primary ongoing crop loss assistance program. It
is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C.
1501 et seq.), and is administered by the U.S. Department of Agriculture’s Risk
Management Agency (RMA). This is complemented with the Non-Insured
Assistance Program, administered by the Farm Service Agency (FSA), which is
available to producers not offered insurance coverage. Lack of insurance availability
occurs in locations where there is insufficient production history to determine
actuarial risks of a crop or in regions where production of a specific commodity is
relatively small. Following a widespread and severe drought in 1988, Congress
approved a large ad hoc disaster assistance program to supplement the ongoing
disaster programs. Such ad hoc assistance subsequently has became routine. For
more information on currently available agricultural disaster assistance, see CRS
Report RS21212, Agricultural Disaster Assistance.
Since the federal crop insurance program is permanently authorized, it does not
require periodic reauthorization in an omnibus farm bill. However, during the 2007-
2008 farm bill debate, some policymakers expressed interest in revising the crop
insurance program in the context of the farm bill and/or supplementing it with a
permanent disaster payment program.
Crop Insurance Background
Federal crop insurance policies are marketed and serviced by private insurance
companies. In purchasing a policy, a producer growing an insurable crop may select
a level of crop yield and price coverage and pay a portion of the premium, which
increases as the levels of yield and price coverage rise. The remainder of the
premium is covered by the federal government. Coverage is made available through
various insurance products, including revenue insurance, which allows a participating
producer to insure a target level of farm revenue rather than just production levels.
According to the USDA, the federal crop insurance program provided coverage in
2007 to over 100 crops covering more than three-fourths of planted acreage in the
country. Although the list of covered commodities has grown in recent years, 80%
of total policy premiums (and federal subsidies) are accounted for by just four
commodities — corn, soybeans, wheat, and cotton.
CRS-2
Table 1. Government Cost of Federal Crop Insurance
(millions of dollars)
Federal
Private Company
Fiscal
Program Losses
Other
Total
Premium
Admin. Expense
Year
or (Gains)a
Costsb
Gov’t. Cost
Subsidy
Reimbursements
1981
97
47
0
105
248
1982
(60)
91
18
110
160
1983
147
64
26
97
334
1984
211
98
76
102
487
1985
216
100
107
98
521
1986
216
90
101
97
504
1987
55
73
107
73
309
1988
609
103
155
78
945
1989
400
190
266
88
945
1990
234
213
272
87
806
1991
247
196
245
84
772
1992
232
197
246
88
764
1993
750
197
250
105
1,303
1994
(127)
247
292
78
489
1995
188
774
373
105
1,440
1996
88
978
490
64
1,621
1997
(373)
945
450
74
1,096
1998
(75)
940
427
82
1,374
1999
(74)
1,295
495
66
1,783
2000
196
1,353
540
86
2,175
2001
725
1,707
648
83
3,163
2002
1,182
1,513
656
114
3,466
2003
822
1,873
743
150
3,589
2004
(303)
2,387
899
142
3,125
2005
(591)
2,368
782
139
2,698
2006
(298)
2,782
960 126
3,571
2007
(1,344)
3,819
1,341
125
3,941
Source: USDA Office of Budget and Program Analysis. Totals may not add due to rounding.
a. The difference between total premiums (farmer and government paid) and total indemnity payments
for crop losses, plus or minus any private company underwriting losses or gains.
b. Other costs primarily include federal salaries of USDA’s Risk Management Agency and beginning
in 2002, various research and development initiatives mandated by ARPA of 2000 (P.L. 106-
224).
CRS-3
Because the program is not subject to periodic reauthorization, major changes
to the crop insurance program usually are not addressed in the context of an omnibus
farm bill. Over the past 25 years, the program has been subject to three major
legislative enhancements (in 1980, 1994, and 2000),1 each of which has pumped
additional federal dollars into the program in order to enhance farmer participation
levels in anticipation of precluding the demand for ad hoc disaster payments.
Since the last major modification in 2000, the federal subsidy to the crop
insurance program has averaged about $3.25 billion per year, up from an annual
average of $1.1 billion in the 1990s and about $500 million in the 1980s. Nearly
two-thirds of the current federal spending is used to subsidize insurance policy
premiums, and the balance primarily covers the government share of program losses
and reimburses participating private insurance companies for their administrative and
operating expenses (see Table 1).
Although the scope of the program has widened significantly over the past 25
years, the anticipated goal of crop insurance replacing disaster payments has not been
achieved. In virtually every crop year since 1988, Congress has provided ad hoc
disaster payments to farmers with significant weather-related crop losses. These have
been made available primarily through emergency supplemental appropriations, and,
until recently, regardless of whether a producer had an active crop insurance policy.
The exception to the historical pattern is the FY2007 supplemental appropriations act
(P.L. 110-28, as amended by the FY2008 Consolidated Appropriations Act), which
is expected to provide an estimated $2.4 billion in crop disaster payments for 2005,
2006, or 2007 crop losses, but only to those producers who held an active crop
insurance policy or enrolled in the noninsured assistance program in the year of the
crop loss.2
Since FY1989, total disaster payments have amounted to more than $20 billion,
or just over $1 billion per year. Over the past six years (FY2001-FY2006), the federal
cost of the crop insurance program combined with ad hoc supplemental disaster
payments has averaged $4.5 billion per year (see Figure 1).
For a summary of all agricultural disaster assistance provided by Congress since
1988, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief
History of Supplemental Appropriations, FY1989-FY2007.
1 Federal Crop Insurance Act of 1980 (P.L. 96-365), Federal Crop Insurance Reform Act
of 1994 (P.L. 103-354), Agriculture Risk Protection Act (ARPA) of 2000 (P.L. 106-224).
For information on ARPA of 2000, see CRS Report RL30739, Federal Crop Insurance and
the Agriculture Risk Protection Act of 2000 (P.L. 106-224).
2 This assistance was provided in Title IX, Section 9001 of the FY2007 Iraq War
Supplemental Act (P.L. 110-28). The projected spending of $1.5 billion for 2005, 2006 and
early 2007 crop losses will be made in FY2008. For a description of this and other types of
agricultural assistance made available in P.L. 110-28, see CRS Report RS21212,
Agricultural Disaster Assistance.
CRS-4
Figure 1. Crop Insurance and Disaster Payments:
Total Federal Cost, by Fiscal Year
6000
5000
4000
3000
illion $
M
2000
1000
0
8
4
0
6
'8
'90
'92
'9
'96
'98
'0
'02
'04
'0
Crop Insurance
Crop Disaster Payments
Source: Primary data are from USDA’s Table 35, CCC Net Outlays by Commodity & Function for
disaster payments, and USDA’s Office of Budget & Program Analysis for crop insurance.
Crop Insurance And Disaster Provisions in the 2008 Farm Bill
The following sections review the major crop insurance and disaster assistance
provisions of the enacted 2008 farm bill (P.L. 110-246) and the major issues that
shaped the debate. See Appendix A, below, for a comparison of the crop insurance
and disaster assistance provisions in the enacted 2008 farm bill, with the House- and
Senate-passed versions of the farm bill and previous law.
Reducing Crop Insurance Program Costs
Because of the rising cost of the crop insurance program, many policymakers
viewed the program as a potential target for spending reductions, whereby savings
could be used to fund new initiatives in various other titles of the farm bill.
Consequently, Title XII of the Food, Conservation, and Energy Act of 2008 (P.L.
110-246, the 2008 farm bill) contains several revisions to the crop insurance
program, most of which are designed to reduce program costs. For all crop insurance
provisions in Title XII, the Congressional Budget Office (CBO) estimates net budget
outlay savings of $3.9 billion over 5 years (FY2008-FY2012), or $5.6 billion over 10
years (FY2008-FY2017), relative to the March 2007 baseline which was the official
budget scoring benchmark for the bill.
CRS-5
Timing of Crop Insurance Payments. Approximately $2.8 billion of this
estimated five-year savings is attributable to changes in the timing of premium
receipts from farmers, and payments to the participating insurance companies. None
of these revisions would directly affect the final monetary amounts for participating
farmers or insurers, but would still be scored as savings within the five-year horizon
of the bill. Essentially, these 2008 farm bill provisions will allow USDA to collect
two crop years of premiums in 2012, and delay the 2012 payment of reimbursements
and underwriting gains into the next fiscal year.
Insurance Company Reimbursements and Loss Sharing. Although
crop insurance is sold and serviced by private insurance companies, the federal
government absorbs a large portion of program losses and reimburses the companies
for their administrative and operating (A&O) expenses. Loss sharing and A&O
reimbursements currently are spelled out in a Standard Reinsurance Agreement
(SRA) between USDA and the private companies.3
Under the SRA, the reimbursement rate for A&O expenses currently averages
22% to 24% of total premiums. The 2008 farm bill reduces the A&O reimbursement
rate by 2.3 percentage points beginning with the 2009 reinsurance year (July 1, 2008).
This reduction can be restored in any state that experiences a loss ratio of 1.2 or
greater (i.e., when total indemnity payments to farmers are more than 20% greater
than total premiums). The farm bill also reduces the A&O reimbursement rate to
12% for any plan of insurance that is based on area-wide losses. CBO estimates that
these provisions will save $618 million over five years.
A House provision to require the insurance companies to share more of their
underwriting gains with the federal government was not included in the final version
of the bill. The conferees did adopt a provision that allows USDA to renegotiate the
SRA once every five years beginning with the 2010-2011 reinsurance year.
During the farm bill debate, the Administration and others contended that the
private insurance companies should be required to absorb more of the program
losses, and that the reimbursement rate for company A&O expenses needed to be
reduced as a means of reducing federal costs. Proponents for change point out that
A&O reimbursements to the companies have doubled over the last seven years (see
Table 1), mainly because farmers have been buying up to higher levels of insurance
coverage, causing total premiums to rise. Since A&O reimbursements are based on
a percentage of total premiums (and premiums have been rising significantly in
tandem with crop prices), the Administration contends that the companies are being
overcompensated for their expenses. The private crop insurance companies contend
that any reductions in the A&O reimbursement will negatively impact the financial
health of the crop insurance industry and possibly jeopardize the delivery of crop
insurance, particularly in high-risk areas.
Farmer Subsidy and Costs. Under the crop insurance program, farmers
pay no premium for CAT coverage (which is 100% subsidized by the government),
and are encouraged to purchase higher levels of coverage. On average, about 50%
3 For more background and for the text of the SRA, see [http://www.rma.usda.gov/pubs/ra/].
CRS-6
of the premium is subsidized by the government for this buy-up coverage. For
farmers whose crops are not covered by crop insurance, they are offered the
equivalent of CAT coverage under a separate Noninsured Assistance Program
(NAP), and pay an administrative fee for this coverage.
A number of provisions are included in the 2008 farm bill that require
participating farmers to share more in program costs, including (1) an increase in the
fee paid by farmers for both catastrophic (CAT) coverage and NAP to $300 per crop
per county, from the previous $100 fee; and (2) a 4 percentage point reduction in the
rate of premium subsidy received by farmers for policies based on area-wide losses.
The 2008 farm bill also requires USDA to operate the crop insurance program so that
the anticipated loss ratio is 1.0 (i.e., total indemnity payments equal to total
premiums), compared with the then-current statutory loss ratio requirement of 1.075.
To achieve the new lower ratio could mean somewhat higher premiums for farmers.
Waste, Fraud, and Abuse
For many years, policymakers have been concerned about waste, fraud, and
abuse within the federal crop insurance program. The Agricultural Risk Protection
Act (ARPA) of 2000 (P.L. 106-224) contained several provisions designed to
enhance USDA’s recognition of and response to challenges to program compliance
and integrity. In response to the ARPA requirements, USDA used “data miningâ€
techniques to compile an annual list of producers who either exhibit high loss ratios
(i.e., high indemnity payments relative to total premiums), exhibit high frequency and
severity of losses, or are suspected of poor farming practices that might contribute to
production losses. USDA estimates that the use of the spot-check list has prevented
between $70 million and $110 million each year in improper payments. Mandatory
funding authorized by ARPA for data mining and other ARPA-related program
integrity activities expired at the end of FY2005. A general provision in the FY2008
Consolidated Appropriations Act (P.L. 110-161) allows USDA to use up to $11.166
billion in mandatory funds in FY2008 to strengthen its ability to reduce waste, fraud,
and abuse within the crop insurance program. However, future funding for this
activity was uncertain.
The 2008 farm bill authorizes up to $4 million annually for data mining
activities beginning in FY2009, and authorizes $15 million annually for four years
(FY2009-FY2013) to upgrade USDA’s computer technology for crop insurance.
Agricultural Disaster Assistance
During the 2007-2008 farm bill debate, some policymakers wanted to make
permanent in the farm bill some level of disaster payments to supplement the crop
insurance program. Supporters say that ongoing farm disaster programs do not
adequately address emergency needs when a major disaster strikes and that USDA
should have at its disposal a permanent source of disaster funds in the same manner
as the Federal Emergency Management Administration (FEMA). Questions in the
debate included how such a program would be funded given current budget
constraints, and whether the permanent availability of disaster payments would
adversely affect participation in the crop insurance program, and possibly encourage
production on high-risk lands.
CRS-7
Supplemental Crop Revenue Assistance Program. Title XV of the
2008 farm bill authorizes a series of new disaster programs through September 30,
2011, the largest of which is a supplemental revenue assistance payment program for
crop producers. The program is designed to compensate eligible producers for a
portion of crop losses that are not eligible for an indemnity payment under the crop
insurance program (i.e., the portion of losses that is part of the deductible on the
policy.) An eligible producer can receive a payment equal to 60% of the difference
between a target level of revenue and the actual total farm revenue for the entire
farm. The target level of revenue would be based on the level of crop insurance
coverage selected by the farmer, thus increasing if a farmer opts for higher levels of
coverage. (See the box in this report for a description of how the guarantee level and
total farm revenue are defined by the statute.) To be eligible for a payment, a
producer must be either in or contiguous to a county that has been declared a disaster
area by either the President or the Secretary of Agriculture. Payments are limited so
that the disaster program guarantee level cannot exceed 90% of what income likely
would have been in the absence of a natural disaster.
The producer also must have at least the minimum level of crop insurance
(CAT) coverage for insurable crops and participate in the NAP program for non-
insurable crops. The statute makes an exception for the 2008 crop year by allowing
producers who did not purchase crop insurance or NAP coverage in advance to be
eligible for the program, as long as they pay the equivalent administrative fee for
coverage within 90 days of enactment.
Other Authorized Disaster Programs. In addition to the supplemental
crop revenue assistance payment program described above, the 2008 farm bill also
authorizes and funds four smaller disaster programs: (1) Livestock Indemnity
Payments, which compensate ranchers at a rate of 75% of market value for livestock
mortality caused by a disaster; (2) Livestock Forage Disaster Program, to assist
ranchers who graze livestock on drought-affected pastureland or grazing land; (3)
Emergency Assistance for Livestock, Honey Bess and Farm Raised Fish, which will
provide up to $50 million to compensate these producers for disaster losses not
covered under other disaster programs; and (4) Tree Assistance Program, for
orchardists and nursery growers who can receive a payment to cover 70% of the cost
of replanting trees or nursery stock following a disaster (up to $100,000 per year per
producer).
Disaster Program Funding. All five of these farm bill disaster programs
will receive funding through a newly authorized Agricultural Disaster Relief Trust
Fund within the U.S. Treasury. The Trust Fund will receive the equivalent of 3.08%
of the amount received each year (FY2008-2011) in U.S. Customs receipts collected
on certain goods. The Congressional Budget Office (CBO) estimates the combined
total costs to be $3.8 billion over the four-year life of the programs, relative to the
March 2007 budget baseline. Of this total, CBO estimates that supplemental crop
revenue assistance will cost $1.7 billion over the four years, or an average of $425
million per year. Another $1.6 billion would cover increased crop insurance and NAP
costs associated with the crop insurance and NAP purchase requirement. The
balance of $500 million would cover the combined estimated cost of the other four
disaster programs. If the cost of the programs exceeds the level of funding provided
through Customs receipts, the 2008 farm bill gives the Trust Fund the authority to
borrow from the Treasury such sums as necessary to meet its obligations.
CRS-8
Supplemental Agricultural Disaster Assistance Payment Mechanism in the 2008 Farm Bill
Title XV of the 2008 farm bill (P.L. 110-246) authorizes a new crop disaster program for FY2008-
FY2011. Eligible farmers must be in or contiguous to a disaster declared county, or have a 50% crop loss.
They must have purchased crop insurance or Noninsured Assistance Program (NAP), where applicable.
I. Payment Formula
Eligible crop producers can receive a supplemental payment equal to:
60% of (Disaster Assistance Program Guarantee (DAPG) minus Total Farm Revenue (TFR) )
Formula is based on the revenue of the entire farm. DAPG cannot exceed 90% of Expected Revenue
II. How to Calculate the Disaster Assistance Program Guarantee (DAPG):
A. Insurable Crops
DAPG = 115% of (Payment Rate X Payment Acres X Payment Yield)
Payment Rate = Crop Insurance Price Election
Payment Acres = Planted and Prevented Planting Acreage
Payment Yield = Selected Crop Insurance Coverage Level X Crop Insurance Yield
Hypothetical Corn Example:
Price Election = $4.75; Planted Acres = 500; Coverage Level = 70%; Yield = 150 bushels per acre
DAPG = 1.15 ($4.75 X 500 Acres X (.7(150 bushels per acre))) = $286,781.25
B. Non-insurable Crops
120% of (Payment Rate X Payment Acres X Payment Yield)
Payment Rate = 100% of the Noninsured Assistance Program (NAP) Price
Payment Acres = Planted and Prevented Planting Acreage
Payment Yield = Adjusted NAP yield or Counter-Cyclical Payment (CCP) yield, whichever is higher
III. How to Calculate Total Farm Revenue (TFR) :
TFR = Estimated Actual Value for each crop produced on the farm =
Value of Actual Crop Production + 15% of Direct Payments + CCP or Average Crop Revenue (ACRE)
Payments + Loan Deficiency Payments (LDP) or Marketing Loan Gains (MLG) + Crop Insurance
Indemnities + NAP Payments + Other Disaster Payments
Where the Value of Actual Crop Production = Actual Harvested Acreage X Estimated Actual Yield x
Natl. Avg. Market Price
For NAP eligible crops, the National Average Market Price cannot be greater than 100% of NAP Price.
IV. How to Calculate Expected Revenue
DAPG cannot exceed 90% of Expected Revenue.
Expected Revenue =
(Adjusted APH or CCP Yield X Planted and Prevented Acreage X Price Guarantee) +
(Adjusted NAP Yield X Adjusted NAP Price)
CRS-9
Appendix A. Major Crop Insurance and Disaster Assistance Provisions in the Enacted 2008 Farm Bill:
Comparison with Previous Law and House- and Senate-Passed Bills
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
TITLE XII: CROP INSURANCE
Timing of Crop Insurance Payments and Receipts
The federal government provides three
Changes the timing of crop insurance
Similar, but not identical, language as the
Adopts the House provision that changes
levels of subsidies to the crop insurance
receipts (premium collections) and the
House bill, which effectively requires
the premium billing date to August 15
program: (1) subsidizing a portion of the
timing of payments to the insurance
premiums to be collected from producers
[Sec. 12007], the Senate provisions that
farmer-paid premium, (2) reimbursing
companies, beginning with the 2012
slightly earlier, and payments to the
change the timing of reimbursements to
the private crop insurance companies for
reinsurance year (which starts July 1,
insurance companies to be made slightly
the private companies for operating
most administrative and operating
2011). Two insurance years of program
later, beginning in the 2012 crop year, so
expenses to between October 1 and 31
expenses, and (3) absorbing most of the
receipts will be received in the same
that savings can be scored in the last year
[Sec. 12015] and underwriting gains to
program losses. [7 USC 1501 et seq.]
fiscal year (FY2012) and payments will
of the 5-year farm bill (FY2012). [Secs.
October 1 [Sec. 12018], thus allowing the
be delayed until the next fiscal year, thus
1906 and 1914]
scoring of budget savings in FY2012.
scoring budget savings in FY2012. [Secs.
11001(c), 11001(e), and 11010]
Reimbursement of Administrative and Operating Expenses
Current law prohibits companies from
Beginning in the 2009 reinsurance year,
Beginning in the 2009 reinsurance year,
Beginning in the 2009 reinsurance year,
receiving a reimbursement greater than
the reimbursement rate to the insurance
the reimbursement rate for additional
the reimbursement rate for additional
24.5% of total premiums. The current
companies for their administrative and
coverage policies falls by 2 percentage
coverage policies falls by 2.3 percentage
Standard Reinsurance Agreement (SRA)
operating expenses for all policies
points. An exception is any reinsurance
points. Restores one-half of the
establishes the reimbursement rate below
declines by 2.9 percentage points from
year in any state that has a loss ratio
reduction in states with a loss ratio
the statutory maximum for all insurance
the current rate. The range of
greater than 1.2 (i.e., when indemnity
greater than 1.2. [Sec. 12016] The
plans, ranging from 18.1% to 24.2%. [7
reimbursement rates declines to between
payments exceed total premiums by more
reimbursement rate for policies based on
USC 1508(k)(4)(A)]
15.2% to a maximum of 21.3%. [Sec.
than 20%.) The reimbursement rate for
area-wide losses is reduced to 12% of
11001(d)(1)]
policies based on area-wide losses is
total premiums. [Sec. 12012]
reduced to 17% of total premiums. [Sec.
1912]
Premiums and Fees
For catastrophic (CAT) coverage,
Increases the producer-paid fee for
Similar to the House bill for raising the
Raises the CAT fee to $300 per crop per
producers pay no premium, but pay an
catastrophic coverage to $200 per crop
CAT fee to $200. The NAP fee is
county. [Sec.12006] Increases the NAP
administrative fee of $100 per crop per
per county. For NAP, the fee also is
increased to $200 per crop per county, or
fee to $250 per crop per county, or $750
county. [7 USC 1508(b)(5)(A)] Growers
raised to $200 per crop per county, or
$600 per producer per county, not to
per producer per county, not to exceed
of uninsurable crops are eligible for a
$600 per producer per county, not to
exceed $1,500 per producer. [Secs. 1905
$1,875 per producer. [Sec. 12028]
separate Noninsured Assistance Program
exceed $1800 per producer. [Secs. 11002
and 1926]
(NAP) and pay a fee of $100 per crop, or
and 11009]
CRS-10
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
$300 per producer per county, not to
exceed $900 per producer. [7 USC
7333(k)(1)]
When permitted by state law, a
Limits the ability of associations to pay
Revises current law to clarify that the
Adopts the provision in Sec. 1905 of the
cooperative or trade association may pay
the CAT fee on behalf of a producer.
provision applies only to fees for CAT
Senate bill which clarifies that
on behalf of its members, any or all of
[Sec. 11001(b)] Prohibits insurance
coverage. [Sec. 1905]
cooperatives and trade associations can
the administrative fee for CAT coverage.
companies from paying or rebating
pay only the fees for catastrophic
[7 USC 1508(b)(5)(B)] .
premiums, or making any inducements to
coverage on behalf of their members.
purchase crop insurance. [Sec. 11001(a)]
[Sec. 12006] Also adopts the provision
in Sec. 11001(a) of the House bill that
prohibits the rebating of premiums, with
certain exceptions for entities that have
already been approved for rebating.
[Sec. 12004]
Authorizes crop insurance companies to
Strikes authority for companies to offer a
Strikes authority for PRP only, and
Strikes authority for the PRP only. [Sec.
offer customers a discount when the
Premium Reduction Plan (PRP) or
requires USDA to commission a study on
12010]
insurance companies adopt efficiencies
Premium Rate Reduction Pilot program.
the feasibility of the PRP within 18
that reduce their administrative and
[Sec. 1101(f)]
months of enactment. [Sec. 1908]
operating costs. [7USC 1508(b)(5)(A)]
No comparable provision.
Reduces the premium subsidy for area
No comparable provision.
Adopts the House provision. [Sec.
risk plans by 4 percentage points. [Sec.
12012]
11013]
Requires USDA to set premiums so that
No comparable provision
Reduces the statutory loss ratio to 1.0,
Adopts the Senate provision. [Sec.
the overall program loss ratio is 1.075.
meaning that total premiums should be
12003]
[7 USC 1506(n)]
established to equal expected total
indemnity payments. [Sec. 1903]
Authorizes an Agricultural Management
No comparable provision
Allows USDA to use AMA funds to
No comparable provision.
Assistance (AMA) program to in part
match state funds used to provide
help certain states make better use of risk
additional premium discounts to
management tools. [7 USC 1524(b)]
underserved states. [Sec. 1923]
CRS-11
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
Standard Reinsurance Agreement and Risk-Sharing
The current Standard Reinsurance
Requires the private insurance companies
No comparable provision.
No comparable provision.
Agreement (SRA) between the federal
to reinsure at least 22% of their retained
government and private crop insurance
premiums with the government, and in
companies determines levels of risk
return the government will provide a
sharing. The current agreement requires
ceding commission of 2% to companies,
companies to reinsure 5% of their
allowing the government to receive some
retained premium with the government.
underwriting gains that would otherwise
accrue to the companies. [Sec. 11014]
No comparable provision.
USDA can renegotiate the SRA starting
Similar to the House bill, except that
Allows USDA to renegotiate the SRA
with the 2012-13 reinsurance year, and
USDA has discretion to renegotiate the
beginning with the 2010-11 reinsurance
once every 5 years thereafter. Insurance
SRA more frequently than every 5 years,
year and once every 5 years thereafter.
companies can confer with each other
with congressional notification of such
Adopts the Senate provision to allow
during the process. [Sec. 11001(d)(2)]
action. Allows crop insurance companies
companies to confer with each other and
to confer with each other and collectively
collectively with USDA during
with USDA during the renegotiation
renegotiation. SRA can be renegotiated
process. [Sec. 1913]
more than once in a 5-year period if one
of the changes is required by law, and
Congress is notified. [Sec. 12017]
Program Integrity (Waste, Fraud, and Abuse)
Annual mandatory funds of $23 million
Authorizes mandatory funding of $11
Requires USDA to establish a program
Provides mandatory funding of up to $4
for data mining and program integrity
million in FY2008, and $7 million in
whereby crop insurance companies pay
million per year beginning in FY2009 for
activities expired at the end of FY2005.
FY2009 and subsequent years for crop
USDA a fee for access to its data mining
data mining, and requires periodic
[7 USC 1516(k)] Annual appropriations
insurance program compliance and
system, and USDA uses proceeds for its
competition for the funds. Also, adds a
acts provided $3.6 million in annual
integrity activities, including data
data system. [Sec. 1915] Prohibits
new subsection to provide mandatory
discretionary funds (FY2006, FY2007).
mining. [Sec. 11008]
farmers from collecting commissions as
funds of up to $15 million per year over
FY2008 appropriations act authorized
agents on policies in which their family
4 years (FY2009-13) to upgrade USDA’s
mandatory funds of $11.2 million.
has a substantial interest. [Sec. 1904]
computer technology for crop insurance.
[Sec. 12021] Adopts the Senate provision
that prohibits farmers from collecting
commissions as agents on policies in
which their family has an interest, with
modifications to the definitions of
“family†and “compensation.†[Sec.
12005]
CRS-12
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
Risk Management Research and Development
USDA is required to reimburse an
Authorizes USDA to use no more than
Reduces annual mandatory funding for
Adopts the Senate provision to reduce
applicant for the R&D costs associated
$30 million annually in mandatory funds
R&D from $15 million to $7.5 million,
mandatory funding for R&D from $15
with developing a new plan of crop
for grants for R&D and education and
and for contracting and partnerships from
million to $7.5 million and for
insurance that is approved by USDA [7
information programs, of which $5
$25 million to $12.5 million. Prohibits a
contracting and partnerships from $25
USC 1522] and with developing crop
million is for underserved states.
surcharge on premiums for organic crops,
million to $12.5 million. [Sec. 12024]
insurance education programs. [7 USC
Stipulates criteria for which grants will
unless greater loss history is confirmed.
Applicants with approved concept papers
1524] Current annual mandatory funding
be awarded. Requires USDA to enter into
Establishes an alternative reimbursement
for a new policy can receive up to 50%
is $15 million for R&D reimbursements
contracts to improve coverage for
grant process. Requires USDA to enter
of expenses in advance, and the balance
and $25 million for contracting and
organic crops, and to address the needs of
into contracts to expand coverage for
upon approval. [Sec. 12022] Adopts the
partnerships. [7 USC 1522(e)]
beginning and minority farmers. [Secs.
organic crops, aquaculture, energy crops
House provision to enter into contracts to
11003-11006]
such as switchgrass, and to address the
improve coverage for organic crops, and
needs of beginning and minority farmers.
Senate provisions for energy crops and
[Secs. 1917-1919, 1907]
aquaculture, and other new provisions for
poultry, beekeepers, and beginning
farmers. [Sec. 12023] Requires USDA to
emphasize the development of risk
management education programs for
beginning, immigrant, socially
disadvantaged, retiring, and transitioning
farmers. [Sec. 12026]
Other Crop Insurance Provisions
No comparable provision.
Establishes a National Drought Council
No comparable provision.
No comparable provision.
within USDA and national drought
preparedness plans, including a Drought
Assistance Fund to provide technical and
financial assistance to states for
mitigating drought risk. [Sec. 11012]
Ad-hoc emergency disaster payments are
Prohibits USDA from using production
Similar to the House bill. Also requires
Adopts the Senate provision. [Sec.
available to producers who experienced
data from the sweet potato crop insurance
USDA to extend the disaster application
12029]
significant losses to a 2005, 2006, or
pilot program in determining crop
deadline for sweet potato growers, if
2007 crop. (Sec. 9001 of P.L. 110-28, as
disaster payments for 2005 and 2006.
necessary, to implement this provision.
amended by P.L. 110-161).
[Sec. 11016]
[Sec. 1927]
CRS-13
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
Authorizes USDA to create crop
Mandates a sesame insurance pilot
Creates pilot programs for sesame [Sec.
Authorizes separate insurance pilot
insurance pilot programs. [7 USC 1523]
program for Texas. [Sec. 11011]
1921], camelina [Sec. 1920], and
programs, for sesame, camelina, grass
enterprise/whole farm units [Sec. 1909].
seed [Sec. 12025] and for enterprise and
whole farm units (with some
modifications to the Senate provision)
[Sec. 12011]
No comparable provision.
Non-cropland (including native grassland
Makes native sods planted to an insurable
Makes native sods planted to an insurable
and pastureland) planted to an insurable
crop (over 5 acres) ineligible for crop
crop (over 5 acres) ineligible for crop
crop ineligible for crop insurance for the
insurance and the noninsured crop
insurance and the noninsured crop
first 4 years of planting. [Sec. 11007]
disaster assistance program. Directs
disaster assistance program for the first 5
USDA to report within 180 days of
years of planting. May apply to virgin
enactment, and annually thereafter, on
prairie converted to cropland in the
changes in cropland acreage, by county,
Prairie Pothole National Priority Area, if
since 1995. [Sec. 2608]
elected by the state. [Sec. 12020]
No comparable provision.
No comparable provision.
Makes contract livestock producers
No provision addressing the eligibility of
eligible for crop insurance, if not covered
contract livestock producers.
by other policies. [Sec. 1916] Requires a
Adopts the requirement that USDA
USDA report within 180 days of
report on declining yield issues. [Sec.
enactment on issues regarding declining
12030]
crop insurance yields, especially for
perennials. [Sec. 1928]
No comparable provision.
No comparable provision.
An organic crop is defined as any
Adopts the Senate provision. [Sec.
agricultural commodity that is
12001]
organically produced consistent with
section 2103 of the Organic Foods
Production Act of 1990 (7 U.S.C. 6502).
[Sec. 1901]
Title XV: Supplemental Agriculture Disaster Assistance
Congress periodically provides ad-hoc
No comparable provision.
Authorizes a permanent agricultural
Adopts a variation of the Senate
emergency disaster payments to crop and
disaster trust fund that will fund a series
provision. For FY2008-11, five new
livestock growers to supplement income
of disaster programs that provide
disaster programs are authorized and
following a natural disaster. Most
payments to crop and livestock growers
funded through a transfer of 3.08% of
recently, Congress provided emergency
who experience significant production
annual customs receipts. The five new
supplemental assistance for 2005, 2006,
losses in a USDA-declared disaster area.
programs are: 1) Supplemental Revenue
or 2007 production losses. [Sec. 9001 of
For FY2008-12, the program is funded
Assistance Payments (for crops); 2)
P.L. 110-28, as amended by P.L.
through a transfer of 3.34% of annual
Livestock Indemnity Payments; 3)
110-161].
customs receipts from the U.S. Treasury.
Livestock Forage Disaster Program; 4)
CRS-14
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
CURRENT LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-246)
Payments are made under four new
Emergency Assistance for Livestock,
programs: 1) Supplemental Revenue
Honeybees, and Farm-Raised Catfish;
Assistance Payments (for crops); 2)
and 5) Tree Assistance Program. [Sec.
Livestock Indemnity Payments; 3)
15101]
Emergency Assistance for Livestock,
Honeybees, and Farm-Raised Catfish;
and; 4) Tree Assistance Program. [Sec.
12101]