Academic: Crop insurance stays neutral on farm sizes
February 8, 2017
BONITA SPRINGS, Fla. — Crop insurance treats farms of all sizes equally, while occasionally giving some additional benefit to medium and smaller-sized farms, a key professor of agricultural economics said here Tuesday as the crop insurance industry discussed trends and threats to the program at its annual convention.
Critics sometimes argue that crop insurance and other farm programs benefit larger farmers, but James Richardson, co-director of the Agricultural & Food Policy Center at Texas A&M, said that he had run a computer analysis of the crop insurance program and found that it is "about as neutral policy" as can be achieved.
Crop insurance payments are made by the acre, he noted, which means that payments depend on the amount of land a farmer plants.
A spokesman for National Crop Insurance Services, a research organization that co-sponsors the convention with the American Association of Crop Insurers, noted that beginning farmers also benefit from the program because the government has provided for reduced premiums to encourage them to take out the policies.
In another session, Heather Manzano, the civil servant who is the acting head of the Risk Management Agency, said that RMA's improper payment rate fell to 2.02 percent in 2016.
Manzano noted that the improper payment rate was more than 5 percent in other recent years, and that the calculation is based on a new methodology that includes all of RMA's payments.
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Industry officials believe that the payment error rate, which is lower than some other government programs, will be helpful in countering critics of the program. Manzano warned, "It is hard to get to a good number – even harder to stay there."
Manzano said RMA is planning to "dig down a little deeper" in 2017 and develop a payment accuracy rate for each crop insurance company. Most errors, she said, are found in various production reports.
While waiting for President Donald Trump to name an administrator, Manzano said, RMA is continuing "to operate business as usual" and meeting with commodity groups that come to Washington on their fly-ins.
Tom Zacharias, president of National Crop Insurance Services, noted that the number of acres covered by crop insurance has risen from 16 million in 1980 to 290 million in 2016. Premiums have risen from $156 billion to $9.3 billion, and the liability has risen from $3 billion to $100 billion.
The privately delivered program is popular with farmers, he said, because policies are tailored to the individual farmer's needs, premium costs are shared between the farmer and the government, and indemnities are paid quickly. But he also noted that declining commodity prices are making farmers with lower incomes think twice about whether they can afford higher levels of coverage, and critics in think tanks and environmental organizations continue to raise questions about the program.
"The new administration's promise to protect and grow American jobs – and its pro-business attitude – give us reason to be optimistic," Zacharias said in a statement at the conclusion of the conference. "We are eager to partner with the incoming USDA to strengthen rural America and help our farmers."
–The Hagstrom Report