Federal Crop Insurance for Hemp Crops

Federal Crop Insurance for Hemp Crops

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September 9, 2021
Federal Crop Insurance for Hemp Crops
The 2018 farm bill (Agriculture Improvement Act of 2018;
waive “the viability and marketability” requirements for
P.L. 115-334) provided a framework to legalize hemp under
developing a hemp policy or program. Typically, the FCIC
federal law and facilitate the commercial cultivation,
must evaluate the feasibility of an insurance product prior
processing, marketing, and sale of hemp and hemp-derived
to approving it for use in the FCIP, including an assessment
products in the United States. In addition to establishing a
of the demand from agricultural producers for the insurance
regulatory program for production at the U.S. Department
product at the expected cost.
of Agriculture (USDA), the 2018 farm bill provided that
hemp producers may be eligible to participate in the Federal
2018 Farm Bill (P.L. 115-334) Selected Provisions
Crop Insurance Program (FCIP).
Crop Insurance Definitions
The Federal Crop Insurance Act (FCIA) defines certain terms related to
the statute (7 U.S.C. §§1502(b), 1518).
Hemp is a nonpsychoactive variety or cultivar of the
Cannabis sativa plant—the same species as psychoactive
P.L. 115-334 added hemp to the definition of agricultural
marijuana. Hemp is grown for a range of food ingredients,
commodity (§11119). P.L. 115-334 also defined hemp to mean
body products, fibers, textiles, and industrial uses. It is also
the term given in §297A of the Agricultural Marketing Act of
grown for the extraction of cannabinoids, such as
1946 (§11101).
cannabidiol (CBD), used in consumer products.
Insurance Period
The FCIA prohibits coverage of post-harvest losses except for tobacco,
Hemp is defined in statute as the plant and any part of
potatoes, and sweet potatoes (7 U.S.C. §508(a)(2)).
the plant Cannabis sativa, including seeds, derivatives,
extracts, cannabinoids, isomers, acids, salts, and salts of
P.L. 115-334 added hemp to the crops for which post-harvest losses
isomers, whether growing or not with a delta-9
may be covered (§11106).
tetrahydrocannabinol (THC) concentration of not more
Submission of Policies and Materials to the FCIC Board
than 0.3% on a dry weight basis (7 U.S.C. §1639o).
The Federal Crop Insurance Corporation (FCIC) Board is responsible
for reviewing and evaluating private submissions for new crop insurance
policies or premium rates. Approved submissions are eligible for cost
USDA reports that licensed growers planted nearly 70,000
reimbursement, premium subsidies, administrative and operating
acres of hemp in the United States in 2020 (Table 1),
subsidies, and FCIC reinsurance. Submitters are required to show that
comprising a miniscule share of all U.S. planted crop acres.
proposed submissions are viable and marketable (7 U.S.C. §1508(h)).
(USDA data are not available on the size of farm-level sales
P.L. 115-334 authorized the FCIC to waive viability and
for hemp grown in the United States.)
marketability requirements in the case of a policy or pilot
Table 1. Hemp Licenses and Planted/Harvested Acres
program relating to the production of hemp, if submitted to the
FCIC Board (§11113).

2016
2017
2018
2019
2020
Licenses Issued
817
1,456
3,543
17,724
13,475
Reimbursement for Research and Development Costs
The FCIC is authorized to contract with private submitters to research
Acres Planted
9,649 25,723 77,844
201,126
69,820
and develop new crop insurance policies. The FCIC may approve up to
Acres Harvested
NA
NA
NA
134,059
33,844
75% of the projected total research and development costs to be paid in
Source: CRS from data reported by USDA and Vote Hemp.
advance to an applicant—provides for reimbursement of “reasonable
research and development costs” (7 U.S.C. §1522(b)).
Notes: The difference between planted and harvested acres reflects

unharvested crops and crop failures, including crops found to exceed
P.L. 115-334 authorized the FCIC Board to waive the viability
legal THC limits that are thus noncompliant hemp.
and marketability requirements for reimbursement of research
Selected Provisions in the 2018 Farm Bill and development costs related to a hemp insurance policy
(§11121).
The 2018 farm bill enacted a number of provisions
regarding crop insurance products and programs available
Risk Management Options for Hemp
to hemp producers. These provisions allow hemp to be
The FCIP provides subsidized insurance policies to farmers.
included as an insurable crop under the FCIP and provide
Farmers can purchase policies that pay indemnities when
additional flexibilities for developing new hemp coverage
their yields or revenues fall below guaranteed levels. The
(e.g., §§11101, 11119, parts of 11113). Other provisions
FCIC, a government corporation within USDA, pays part of
specifically address the treatment of hemp production
the premium—about 63% on average—and policyholders
within the program. For example, Section 11106 exempts
(farmers) pay the balance. USDA’s Risk Management
hemp (along with tobacco, potatoes, and sweet potatoes)
Agency (RMA) administers the program.
from general requirements that the insurance period “not
extend beyond the period during which the insured
For hemp, USDA offers insurance policies through the
commodity is in the field.” This allows hemp to be insured
FCIP, among other risk management options. To be
by the FCIP during the time when it is not growing in the
eligible, hemp must be grown by licensed producers in
field (such as when dried, cured, or stored). Section 11113
accordance with federal, state, and tribal laws and
permits the Federal Crop Insurance Corporation (FCIC) to
regulations. Hemp found to have a delta-9 THC level above
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link to page 2 Federal Crop Insurance for Hemp Crops
the federal legal level (often referred to as “hot” hemp) is
Other Risk Protection Options
not an “insurable cause of loss.” Hemp crops that exceed
Hemp growers in states where FCIP hemp crop insurance
the allowable THC limit also may not be counted under
may not be available may be eligible for risk protection
actual production history (APH) insurance policies.
under USDA’s Noninsured Crop Disaster Assistance
FCIP Actual Production History for Hemp
Program (NAP). NAP provides catastrophic-level coverage
for hemp grown for fiber, grain, seed, or CBD. Growers
APH insurance policies protect hemp producers against
must have a contract with a hemp processor and must
yield losses due to adverse weather (such as excess
provide THC testing results when reporting lost production
precipitation, hail, frost, and freeze), unavoidable damage
or when reporting for historical production purposes.
from insects and plant disease, other natural causes (such as
Private insurance companies may also provide policies to
drought, fire, earthquakes, wildlife damage, and volcanic
cover hemp and may provide coverage in the event that a
eruptions), and failure of an irrigation system due to an
hemp crop is destroyed due to excessive THC levels.
insurable cause. The policies do not provide coverage for
replanting, prevented planting, or required destruction of
Considerations for Congress
the crop due to THC levels exceeding allowable levels.
Despite changes in the 2018 farm bill making the FCIP
They also do not cover failure to comply with requirements
available to hemp growers, certain challenges remain. The
of processor contracts, post-harvest quality issues, or
development of crop insurance that is actuarially sound and
inability to market (other than actual physical damage to the
based on actual covered risks requires extensive data
hemp from an insurable cause of loss). The policies cover
covering historical production factors (i.e., yields, pests,
hemp grown for fiber, grain, or CBD. The APH hemp
quality issues) and pricing (i.e., contract prices, open bid
policies are available in selected states and counties and
prices, quality price adjustments, and other adjustments for
may not be available to all growers. The APH hemp
different uses). Such data help mitigate against fraud,
policies replaced the previous Multi-Peril Crop Insurance
waste, and abuse. However, hemp production and pricing
(MPCI) Hemp Pilot Program policies available to growers
data are limited and may vary greatly depending on whether
for the 2020 crop year. Under that program, 744 policies
the hemp is grown for fiber, grain/seed, or flower and how
were sold across 20 states (Table 2), accounting for roughly
it will be used. USDA has begun collecting data about U.S.
one-third of all planted hemp acres in the 2020 crop year.
hemp production, production costs and practices,
Complete data for the 2021 crop year are not yet available.
contracting and marketing practices, and demographics.
Table 2. FCIP Coverage for Hemp, 2020 and 2021
Whether these efforts will improve program efficiency and
support effective oversight has yet to be determined.

2020
2021
Total Premium ($mil ion)
3.9
2.5
Price risk and market volatility in the U.S. hemp market
Premium Subsidy ($mil ion)
2.5
1.5
raise questions about FCIP coverage for hemp. Hemp prices
Producer-Paid Premium ($mil ion)
1.4
0.9
have been volatile in recent years due, in part, to an
Liabilities ($mil ion)
27.1
12.3
oversupply of biomass and oftentimes too few potential
Indemnity ($mil ion)
12.1
2.5
buyers. There are limited market pricing mechanisms for
Policies Sold
744
879
hemp. Farmers continue to look for ways to sell their crops
Policies Earning Premium
148
70
and protect themselves from this price volatility through
Covered Acres (number)
21,245
13,105
development of alternative market mechanisms (such as
Source: CRS using RMA Summary of Business data, accessed
futures contracts and forward purchase agreements).
September 2021. Data for 2021 are as of September and do not
reflect the ful calendar year. Data exclude hemp insured under
Continued regulatory uncertainty in the marketplace has
WFRP and nursery policies (see below).
further complicated the market situation for hemp.
Notes: A premium subsidy is the amount of the premium paid by the
federal government. Policies earning premiums are policies that went
It remains to be seen whether allowances provided in the
into effect and for which premiums were due, as opposed to policies
2018 farm bill—waiving the “viability and marketability”
producers signed up for but did not ultimately purchase or policies
that were cancel ed or did not go into effect for other reasons.
requirements for developing a hemp insurance policy or
program—could result in hemp crop insurance that is not
FCIP Whole-Farm Revenue Protection
actuarially sound (i.e., with premium rates not based on
Whole-Farm Revenue Protection (WFRP) insurance
actual production and price risks), potentially disrupting
provides coverage of all revenue for commodities produced
hemp insurance markets. Removing the viability and
on a farm (not specific crops) up to a total insured revenue
marketability requirements for hemp FCIP policies might
of $8.5 million. It allows for coverage of hemp grown for
allow RMA to more quickly review and roll out insurance
fiber, flower, or seeds. Hemp growers can purchase WFRP
proposals from private providers . This could also result in
coverage if they have a contract with a processor for the
higher loss ratios (and higher costs to the U.S. government)
purchase of the insured hemp and if they meet all applicable
if, for example, the developed insurance product proves to
federal, state, and tribal regulations.
be financially unstable, unsuccessful, or unsustainable. This
FCIP Nursery Programs and Policies
outcome could raise the cost of administering FCIP
insurance for hemp. These and other related issues could be
Hemp is insurable under the FCIP Nursery Crop Insurance
the subject of oversight by Congress as hemp crop
Program and the Nursery Value Select pilot crop insurance
insurance and related programs expand.
program if grown in containers and when grown and sold
with the root system attached in containers. Stock plants, or
Renée Johnson, Specialist in Agricultural Policy
plants grown solely for harvest of buds, flowers, or
greenery, are excluded.
IF11919
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Federal Crop Insurance for Hemp Crops

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