Stu Ellis, FarmGate blog
In his recent analysis of crop insurance guarantees, University of Illinois Farm Management Specialist Gary Schnitkey makes the observation that the significantly lower guarantees expected for the 2014 crop demonstrates the inappropriate nature for crop insurance to be the lone safety net for agriculture.
Crop insurance can provide support from planting to harvest, but once the fall guarantee is set on a revenue protection policy, there is no more that crop insurance can do to provide financial support. Consequently, the type of safety net and the level of funding that Congress will appropriate become increasingly important as commodity prices continue to spiral downward.
The four top leaders of the House and Senate Agriculture Committees have become their own self-appointed Conference Committee to resolve the differences between the House and Senate’s versions of a new Farm Bill.
While food and nutrition programs have received the most attention because of the lightning rod nature of funding those programs, little public attention has been given to the farm policy debate within the small group of negotiators.
While they represent their respective houses of Congress, they are trying to find middle ground on resurrecting target prices, using specific prices or year to year averages, and how much money to allocate toward a single season crop insurance program versus year to year support programs.
Ohio State University agricultural economist Carl Zulauf looked back at commodity support programs in past farm bills and said countercyclical programs in the 1996 Farm Bill were 5.6 times the level of spending on crop insurance and 2.8 times crop insurance outlays in the 2002 Farm Bill.
He said, “Countercyclical programs are designed to provide assistance against multiple-year declines in price or revenue.”
Since the 2008 Farm Bill, annual spending has only averaged a half billion dollars on countercyclical programs, but over $4 billion on crop insurance, which he says is a function of the large increase in commodity prices.
“This increase has not only reduced spending on countercyclical programs as market price rose above the policy target prices but also increased spending on insurance as the value of insured crops rose.”
Zulauf says the direct payment program from the last several Farm Bills has been in conjunction with the recent period of farm prosperity, and those supports were twice the level of the supports during the period of prosperity in the 1970s.
With the demise of direct payments in future farm policy, Congress is weighing how to redistribute those $6 billion per year dollars across a year to year safety net versus single season crop insurance programs.
Zulauf says, “However, over 60 percent of the eliminated direct payments remain in spending on the safety net for field crops. Between 65 percent (House) and 81 percent (Senate) of these dollars are used for multiple-year commodity price support programs while the remainder is shifted to single-year crop insurance programs.”
He says this issue has received little attention so far in the Farm Bill debate, but could emerge as a key farm policy issue if commodity prices continue their downward plunge.
Summary:
Crop insurance can protect the value of a crop during its growing season, but not during the marketing year. That has to be a function of any farm policy safety net, and that discussion has not been at the forefront of the on-going debate to reconcile the House and Senate versions of the legislation. With declining values of farm commodities, any price support program and its design will have to become a key part of the debate in the final days before expected passage.