2012 Farm Bill: Implications for Crop Insurance

1. 2012 Farm Bill: Implications for Crop Insurance Insuring Iowa’s Agriculture Workshop Ames, Iowa Nov. 5, 2012 Chad Hart Associate Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Farm Bill Progress? • Senate passed their version, S. 3240, on June 21 • House Ag. Committee passed their version, H.R. 6083, on July 11 • The full House never took up the farm bill • The 2008 farm bill expired Sept. 30, but remember crop insurance is permanently authorized • Right now, we are under the permanent legislation of the 1933 and 1948 farm bills

3. Ideas on the Next Farm Bill • Let’s look at the common features • Both versions of the farm bill eliminate direct payments, countercyclical payments, ACRE, and SURE • The marketing loan program would continue • Livestock disaster programs would be reestablished • Some sort of revenue-based countercyclical program would be created

5. Crop Insurance Ideas • Many crop insurance provisions are similar across the Senate and House proposals • Revenue insurance for peanuts • Whole farm coverage up to 85% • Standard Reinsurance Agreement savings to be reinvested in the crop insurance program

6. Crop Insurance Ideas • Stacked Income Protection (STAX) for upland cotton • Revenue-based, area-wide policy • Pays indemnities when county revenue losses are greater than 10% of expected revenue • One new twist from the Senate • 15% subsidy cut for producers with high AGIs, $750K

7. Crop Insurance Studies • Food safety and contamination loss coverage for specialty crops • Catastrophic disease coverage for hogs • Margin coverage for catfish • Business disruption coverage for poultry

8. Conservation Provisions • Subsidy reduction for the 1st 4 years of coverage on native sod • House version would apply this only to the Prairie Pothole region (which covers part of Iowa) • Senate would remove subsidies for producers who go out of compliance with wetlands (immediately) and highly erodible land (within 5 years)

9. But the Biggest Change Would Be… • The Supplemental Coverage Option (SCO) • An additional policy to cover “shallow losses” • Shallow loss = part of the deductible on the producer’s underlying crop insurance policy • SCO is county-level yield or revenue policy • Indemnities are paid when the county experiences losses greater than 10% of the expected yield or revenue level, but payments are not more than the original deductible

10. SCO Availability • SCO is to be made available for all crops if sufficient data are available • Under the House, SCO can not used if the producer has STAX or the revenue-based countercyclical program • Under the Senate, if the producer has the revenue-based countercyclical program, the loss trigger increases to 21% of expected yield or revenue

11. SCO Subsidies, Timing, and Administration • SCO premiums are to receive a 70% subsidy • SCO would begin for the 2013 crop year • RMA would run SCO and set the premiums

12. SCO Examples Source: Congressional Research Service

13. Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/~chart/Iowa Farm Outlook:http://www.econ.iastate.edu/ifo/Ag Decision Maker:http://www.extension.iastate.edu/agdm/