Crop Insurance/Disaster Relief Federally subsidized crop insurance –Actual Production History (APH) Most recent 10 years of actual yield histories –Multiple-Peril Crop Insurance Various causes of loss –Federal Crop Insurance Corporation (FCIC) –Passed in 1938 –Has been repeatedly changed since then Long History of providing Ad hoc Disaster Assistance –Political 26

Background Insurance in agriculture has traditionally been crop yield insurance –Multiple peril (weather, fire, hail, wind, disease, insects, earthquake, and wildlife) –Based on: historical producer yields coverage level chosen (% of APH) –FCIC determined/developed market price converts losses into dollars

Background Participation in Crop Insurance Program 1980 – 10% of eligible acres 1999 – 70% of eligible acres

Background (Cont.) Insurance designed to provide protection against substantial losses –Deductible works like car insurance –Most common coverage in Texas has been at the 65% level [maximum government subsidy] except cotton (50%) –Higher levels of coverage have been cost prohibitive

Current Insurance Alternatives Actual Production History (APH) Catastrophic Coverage (CAT) Group Risk Plan (GRP) Crop Revenue Coverage (CRC) Income Protection (IP) Group Revenue Insurance Policy (GRIP) Adjusted Gross Revenue (AGR) - schedule F Revenue Assurance (RA) Pilot Programs: Livestock Fruits and vegetables

Dryland Cotton Yield per Planted Acre (Williamson Co.),

Producers Hate Crop Insurance Southern Producers “Doesn’t pay” “Premiums too high relative to indemnities” Midwest Producers “My premiums subsidize producers in marginal areas” There is truth to both points of view

Is There Friction? “ There are certain parts of the country that have acres that are challenged by weather and farm practices that are not up to what they should be... the two Texans who lead the House Agriculture Committee come from such districts and have been joined by others in supporting crop insurance” Senate Agriculture Committee Chairman Richard Lugar (R-Ind.) October 19, 1999

Comparison of Loss Ratios for Selected States and Commodities, 1998 & 1999 Commodities, 1998 & 1999

Agricultural Risk Protection Act of 2000  Major increase in subsidy levels  Revenue policies receives a percentage of premium assistance equal to APH  Yield history adjustments for catastrophic years Substitute 60% of t-yield for actual yields less than 60% of t-yield Only applies to yield guarantee, premium still based on actual yields  Administrative fees: CAT – from $60 per crop per county to $100 Buy up – from %calculation to $30 per crop per county Fees waived for limited resource farmers  Programs for livestock  The cost of production as price election  Premium discounts for good performance  “Beefs up” efforts to combat fraud

Agricultural Risk Protection Act of 2000

Realities Crop insurance provides incentive to produce in high risk areas Ad hoc disaster assistance undermines crop insurance program –Incentive not to purchase insurance Have had to increase subsidy