Crop Insurance--Prairie Potholes, Good Farming, and Seatbelts

As crop insurance takes over being the main "safety net" for crop farmers, it gets more attention:

• from Congress, particularly those in the prairie pothole region, who want consideration for "prevented planting" coverage and have gotten their Congressional delegation involved, as described in this Farm Policy issue.  The problem, as I may have described before, is, unlike Gertrude Stein's rose, a pothole is sometimes arable land and sometimes not.  Or, more accurately, since the marshiness of a pothole varies directly with the general water table level, in wet years a pothole expands its untillable area; in dry years it contracts.  So farmers want coverage for the wet years under their insurance policy.  (It's sort of the mirror image for areas of the Great Plains, where a period of wet years may enable a couple years of continuous cropping whereas dry years mean you have to fallow or reconvert the land back to grazing.)  
• from NRDC, with a study described in a Des Moines Register article suggesting lower premiums for farmers who use good conservation methods:

   "The group said the use of cover crops, such as grasses and legumes that improve soil health and reduce runoff,  no-till farming and an improved irrigation schedule are the best management practices that could be used"

   

Both issues relate to an idea economists have: the more you mitigate risk, the more risk you take, as when you mandate seat belts and improve brakes, people drive faster and tailgate more.

 

Crop Insurance Abroad

A piece on crop insurance in other countries.  Apparently it's being adopted more and more.  In China:

"China’s comprehensive financial support for its farming sector was $156 billion for the year 2011, which included insurance premiums, disease and fire prevention resources and insurance licenses.  Insurance covers crops and livestock and is typically a combination of compensation offered by the central government, the provincial governments and even some city governments. "

Personally I'd question the dollar figure--it might well be the result of a purchasing power conversion.  However, what's the chances of our getting into an "arms race" on the farm front with the Chinese--i.e., "how can our poor farmers compete when our government only provides X dollars in support when the Chinese provides so much more?"  :-)

Ding, Ding, Goes GAO on NRCS and RMA

Ah, the joys of schadenfreude.  Some years after GAO dinged FSA for making payments to dead people GAO revisited the subject, but this time looking at NRCS and RMA payments.  The result was praise for FSA (to the extent GAO ever deals in praise, which is to say, not much) and reproofs for NRCS and RMA.  Recommendations: 

To help NRCS prevent improper payments to deceased individuals, the Secretary of Agriculture should direct the Chief of NRCS to develop and implement procedures to prevent potentially improper payments to deceased individuals, including (1) coordinating roles and responsibilities with FSA to ensure that either FSA or NRCS matches NRCS payment files against SSA's complete death master file and (2) reviewing each payment to a deceased individual to ensure that an improper payment was not made.

To help RMA prevent improper crop insurance subsidies on behalf of deceased individuals and to improve the effectiveness of its data mining, the Secretary of Agriculture should direct the Administrator of RMA to develop and implement procedures to prevent potentially improper subsidies on behalf of deceased individuals, including (1) matching RMA's crop insurance records against SSA's complete death master file and (2) reviewing each subsidy provided on behalf of a deceased individual to ensure that an improper subsidy was not provided.

 Seems to me there's an argument here for administrative consolidation within USDA.  Actually, in the long run if I were dictator I'd modify the E-Verify process so it could be used to check the status of people.  And finally, while SSA is a well-run bureaucracy as far as I know, I'm a little uncomfortable with their death master file--what sort of incentives to report accurately and timely do the people have who do the initial input into the state systems which feed the file?  And what sort of oversight?

The One in Four Rule

One of my first jobs after I switched from Directives to Production Adjustment was a followup to an audit of the disaster program ASCS was running.  The auditor, probably GAO but possibly OIG, faulted us for the number of farmers who got disaster payments in more than one year out of five.  Some got payments in two years, some in three.  So we had to run a computer program to identify these farmers and have the counties re-review the justifications for the payments and question the yield.

I thought of that when I saw this article about the one in four rule for crop insurance.  The difference is that this rule requires farmers to plant the land in at least one out of four rules, presumably being eligible for prevented planting indemnities the other three.  To someone from NY this rule seems ridiculous--why bother if you can only get a crop one out of four years?  That's the quick, knee-jerk reaction.  Slower consideration, remembering the prairie pot-hole area and the dryness of the area in question (i.e. Dakotas, MN, etc.) is perhaps a tad more favorable to RMA.  But the bottomline is once again a lesson in how Congress works.  No matter that GAO has done studies claiming crop insurance encourages the planting of marginal acreage--the ND congressional delegation is raising a fuss.  ("delegation" sounds more impressive than the "three members of Congress from ND".)  This is the way Congress works, and one example of why government programs fall short of a goo-goo's (good government types) dream.

Editing Mistakes and Crop Insurance Fraud Used as a Weapon

In the political infighting over the farm bill, with supporters of farm programs attacking SNAP (food stamps) the SNAP people are fighting back by citing crop insurance fraud.  There's an article in the NY Times this morning on the subject--obviously the SNAP proponents have dug up some ammunition, including the recent NC case and a GAO report.  That's all good. 

What's not so good is this correction:

Because of an editing error, an earlier version of this article misstated the annual spending for the food stamp program and the amount of fraud involved. The budget is $75 billion a year, not $760 billion. The amount of fraud is around $750 million, not $760 million. The article also contained another error: Federal data shows that the rate of food stamp fraud, which has declined sharply in recent years, now accounts for .01 percent of the $75 billion program, or about $750 million a year; not 1 percent.

 Apparently the Times has fired so many fact checkers that they've no one left who knows the difference between 1 percent and .01 percent.  They were right the first time and their correction is wrong.

Capping Crop Insurance Subsidies

Here's the page from the Congressional Record containing the amendment to cap the federal subsidy on crop insurance premiums.  Essentially if the producer is over $750K AGI according to FSA at the beginning of the crop year, the subsidy is whacked 15 points.  The Secretary can waive the requirement.

Though I'm populist and liberal enough to like the concept, there's some issues there.

• Getting congruence between the FSA records and the reinsurance year, given that different crops have different dates and different terms.
• Getting congruence between FSA "producers" and FCIC "insureds" (though that may be a problem which RMA and FSA have already worked out.
• the tipping point.  If a producer goes over AGI by one dollar, he may lose much more in subsidy

[Rural Blog on the amendment.]

FCIC, Fraud, and Pigford

Sen. Hagan of NC got an amendment to the farm bill passed, allowing some use of the crop insurance fund to look for fraud.  Her actions were inspired by the biggest crop insurance fraud yet discovered, located in eastern NC. (Not sure whether it was the biggest in money terms ($100 million), or in the numbers of people involved.  .  I was led to these articles:

• biggest crop insurance fraud
• Stokes

Maybe I'm wrong, but I think this is a reminder that fraud is an equal opportunity temptation.  Also a reminder that whenever there's a new program, or a steep increase in an old program, the incentive to defraud is raised, and bureaucrats would be well advised to increase their counter-measures.  

Crop Insurance and Politics

Chris Clayton reports on bills introduced in Congress to cut crop insurance.  It attracts an unusual number of comments, partly because the thread degenerates a bit (though farmers are still more polite than politicians.)

Crop Insurance and Organics

Sustainable AGriculture highlighted RMA's dropping of the 5 percent surcharge for organic insurance, which seems to have been counterbalanced by their acceptance of OIG recommendations on transitional yields and loss adjustment for organic crops.

This OIG report finds that FCIC/RMA has been offering "transitional yields" (the crop yields assigned to a farm for years when there's no actual production history availabe) for organically grown crops which are too high.  For example, if the transitional yield is 125 bushels an acre for organically grown corn, and the true yield is 11...  Congress has pushed the expansion of crop insurance to organic crops, RMA has responded, but had a contractor evaluate the experience. Excerpts:

The contractor recommended that transitional yields be lowered by 35 percent for insurance plans that use APH yields as the basis for the production guarantee in order to better reflect experience data and lower loss ratios. RMA acknowledges that transitional yields for organic crops are generally too high, but has not implemented the recommendation because it considers the production data currently available to be too “thin” to support a methodology for setting separate transitional yields for organic crops.

We found that insured producers for 35 of 48 organic crop policies with losses did not have production histories supporting that they could grow the insured crops to reach the yields used to determine the production guarantee or amount of insurance.16 This occurred because RMA directs AIPs to apply transitional yields and underwriting standards established for crops produced using conventional farming practices to crops produced using organic farming practices. As a result, at least $952,000 of $2.56 million in indemnities that RMA underwrote were excessive. In addition, insured producers with organic crops experienced a programwide loss ratio of 105 percent.17 In contrast, insureds with conventional crops experienced a loss ratio of only 67 percent.

OIG also found the loss adjusters did not follow procedures for adjusting organic crops.·

Twenty-two stated that the AIPs do not require them to obtain and/or review the organic plan and inspection report.
·
Seven said that the loss adjustment requirements for adjusting crops produced using organic farming practices were no different than for crops produced using conventional farming practices.
·
Five stated that the agent and underwriter collected the organic plan and inspection report.
·
Five loss adjusters gave varying reasons for not obtaining and reviewing the organic plans and inspection reports.

 Bottom line: Organic crops can't actually match conventional cropping in yields, at least not on available data.  It will take years to build the data and the loss adjusting experience to do a good job on organics.

Washington Times Criticizes RMA

Washington Times has an article criticizing the Congressional mandate for RMA to push crop insurance.

"...the RMA’s money is going toward educating farmers on how to make use of crop insurance, adding potential new customers to an already overburdened federal program that costs taxpayers billions of dollars each year, the agency’s own documents show."

Read more: http://www.washingtontimes.com/news/2012/dec/30/usda-agencys-largesse-grows-crop-insurance/#ixzz2GwjWgxb5
Follow us: @washtimes on Twitter

"Welfare Queens" and Crop Insurance

Ronald Reagan made a career out of the welfare mother who financed a Cadillac and other abuses.  That thought, because I don't really like Reagan, sprang to mind when I read a post at Environmental Working Group, which led with these paragraphs:

"Marcia Zarley Taylor recently posted a blog aptly titled Extreme Insurance. As executive editor of DTN, which publishes The Progressive Farmer magazine and website, Taylor is one of the more cogent observers of crop insurance and this year’s drought.
Her post highlighted the happy experience of Seth Baute, a 26-year-old farmer in Bartholomew County, Indiana. As Taylor reported, the combination of a private sector insurance policy on top of a federally subsidized 85 percent Revenue Protection policy “will push [his farm’s] income to at least 110 percent what they had projected last spring when corn was supposed to tumble to $4 a bushel at harvest.”

 I haven't been able to access the post referred to, but EWG is not known as a friend of production agriculture so I would anticipate they will eagerly highlight anything in 2012 results which puts crop insurance in a bad light.

Drought Costs 3.3 Percent

That's the takeaway from the Des Moines Register piece on the USDA estimate of 2012 income. That says to me, whatever I think of crop insurance, the current system puts an effective floor under income for most crop producers.

The Importance of Crop Insurance

In the US the insurers have a video on loss adjustment.

In Ghana, Chris Blattman passes along the conclusion of an academic paper on crop insurance for those farmers.

Competing With Crop Insurance

According to Farm Policy, the crop insurance industry is already bragging on the $2 billion in indemnity payments they have out the door.   It goes on to link to a video NCIS has put out.

This sort of response, and advertising, is a reason why FSA doesn't have a disaster payment program for field crops, as they used to. 

Sustainable Ag on Sequestration

I've a lot of respect for the work Sustainable Ag does in tracking Congress and the administration.  Here they discuss the impact of sequestration on farm programs.  The headline is that crop insurance is defined as a prior legal obligation and therefore not subject to sequestration. 

High Income for 2012?

Very interesting farmgate piece on the possible implications of the income figures for 2012.  Farm income will be up, farmers with the harvest price option on their crop insurance will make out well, and taxpayers might question what subsidies should be in the farm bill.

[Updated to fix link]

NASCOE--A Friend at AEI?

After this beginning, I'm surprised that this guest at the American Enterprise Institute comes out somewhat friendly to NASCOE:

"The U.S. Department of Agriculture's Farm Service Agency (FSA) is often described as overstaffed and inefficiently structured for its mission, which is to deliver and monitor a variety of federal subsidy and conservation programs"

 Hint: he likes crop insurance just as little.

Crop Insurance Audit

The threshold for a required audit of actual production history has been changed from $100,000 to $200,000.  Agweb reports here.  

I don't know if they do random audits of insurees with lower protection or not.
[Stu Ellis has a description of requirements here. ]

Conservatives Don't Like Crop Insurance: Texas and Cruz

Ted Cruz just won the Republican primary in Texas, meaning he's the next US Senator from there.  His reputation is: very smart, very conservative.  But I wonder--Texas agriculture is often beset by disaster, as witness the drought last year.  Not sure what its status is this year, but I'd be willing to bet during his 6 year term in office Texas will have some agricultural disasters.  And of course Texas ranching/farming is part of the self-image of Texas (all hat, no cattle, etc. etc.)

The Washington Times is a conservative newspaper, so I was struck this morning by a piece from a Heritage thinker, who picks up EWG's  populist viewpoint on crop insurance.  Big corporations profit at taxpayer expense.

So my prediction: at some point down the line Sen. Cruz will have to decide between his principles, as represented in the Heritage piece, and his constituents, who will need either crop insurance or a livestock disaster program.

The Problem With Government Is...

We humans deal with assumptions and universals, but reality is a lot more messy.  Example 1 is the Pennsylvania voter ID law, which assumes that everyone either has a photo ID or can easily get one, because everyone has their birth certificate stashed away in their safe deposit box along with all other vital papers.

Example 2 is the reliance on crop insurance, because every farmer is rational and is going to buy it.  Chris Clayton at DTN reports getting calls from farmers like this:

"Is the government going to do anything? I don't have crop insurance.

How could you not have crop insurance? We've been saying since before the 2008 farm bill that you have to have crop insurance.

One farmer only has 160 acres. Crop insurance every year just didn't pencil out.

You didn't look into catastrophic coverage, or CAT?

I don't know what that is.

I wasn't sure what to think of this conversation, but I have to believe there are more people like this farmer out there. He's a small farmer in the scheme of things. He's never needed to rely on government payments and didn't want to. But now he doesn't have a corn crop and concerned the beans won't make anything either.

Is there some type of help available for him at the Farm Service Agency office. He said they couldn't think of anything that would specifically help him out."

 The advantage of disaster programs, perhaps their only advantage, is they apply across-the-board.  If that farmer and others like him make enough of a stink, Congress will do something ad hoc, which partially undermines the whole idea of crop insurance.  The situation is rather like that of a 30-year old who passes on health insurance because it didn't pencil out, then gets into a car crash which leaves her paralyzed.

[Updated to add the link.]