Minding Ag's Business

Crop Insurers Battle Image in Farm Bill Debate

After the humbling 195-234 farm bill defeat on the floor of the U.S. House last week, anguished ag groups are encouraging their members to contact their representatives to press for another chance at passage.

Texas is struggling in the face of a multi-year drought that has devastated cattle herds and crops, but surprisingly 15 of the state's 36 legislators voted against the bill. This week's Stalk Talk e-newsletter from the Corn Producers Association of Texas politely encouraged its members to contact representatives and discuss the significance of a 5-year bill.

Crop insurance industry representatives are more vocal. They want to correct charges by Rep. Ron Kind (R., Wis.) that seemed to rally conservative Republicans and public opinion against the bill.

Correcting the record is critical, they believe. Opponents like the Environmental Working Group--an especially harsh critic of crop revenue policies--observe that of the 62 Republicans who voted against the House farm bill, 40 voted for the crop insurance reform amendment offered by Reps. Ron Kind (D-Wis.) and Tom Petri (R-Wis.).

"If they’d had a chance, even more were likely to have voted for other farm subsidy reforms that were blocked from floor consideration by the House Rules Committee," EWG says in a recent blog. What's more, the public interest group contends that if 40 of the same Republicans who voted for crop insurance reform had voted for final passage, the bill would have narrowly passed. So that could make cuts in crop insurance one of the linchpins in the next round of farm bill debate.

You recall that Iowa State University economist Bruce Babcock and EWG have raised concerns about administrative costs that have more than tripled since 2001 and taxpayer subsidies that pay more than 60% of growers' premiums. While other farm expenses like seed, fertilizer and rent have escalated in recent years, corn and soybean spending on crop insurance premiums have actually fallen.

Kind charged more reforms are needed for crop insurance, arguing that the "government guarantees a 14% profit for insurance companies with virtually no risk to the companies, while paying 100% of administrative and operating expenses." His amendment, which was narrowly defeated, would have curbed underwriting gains and agent commissions; established a limit of $50,000 in subsidies to any person (about 1,100 acre Iowa corn grower or 2,000 acre Kansas wheat grower); and also required anyone with gross sales over $250,000 to pay unsubsidized insurance rates on policy coverage. Other provisions would have required USDA to make certain crop insurance claims public information.

Rick Gibson, a consultant for NAU Country Insurance and one of the executives who pioneered revenue-based crop insurance in the 1990s, questions Kind's premise and has encouraged agents to rebut it.

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The charge that the insurance industry is guaranteed a profit "just isn't true," he says. "If we were guaranteed a profit, how did we lose money last year?"

The industry and USDA are still counting losses from the Great Drought of 2012, he notes. It's made complicated because each company has a different loss sharing agreement. Estimates vary but some believe that private industry could lose $3 billion to $5 billion, he says.

Crop insurance companies also lost money in 1983, 1984, 1988, 1993 and 2002, according to the National Crop Insurance Services. It claims that is in sharp contrast to providers of everyday property and casualty insurance, which have only lost money once over the past 50 years. That loss was in 2001—the year of the 9-11 attacks.

"In 1993, the loss ratio from Iowa's flood was 400%, but commodity prices weren't nearly as high as 2012 and participation wasn't as widespread," Gibson says. Crop insurance companies expect 2012 losses to hit a new record when the tally is finalized.

Gibson also disputes that USDA covers 100% reimbursement for Administrative and Operating expenses. That's supposed to cover operating expense, claims expense and commissions. Gibson says companies have expenses of approximately 5% in excess of A&O. Other crop insurance companies contacted by DTN support that case.

However, as DTN Farm Policy Editor Chris Clayton has reported, conservatives could gain leverage in the next farm bill vote. EWG is building a wish list of targets to appeal to them. Among the EWG's wish list for more crop insurance cuts/savings that might attract some Republican votes are:

--Eliminate the Harvest Price Option, saving an estimated $8 billion over 10 years, according to the Congressional Budget Office;

--Lowering subsidies to crop insurance companies by reducing the administrative cap could save another $5.4 billion over 10 years;

-- Adding a means test and limiting premium subsidies to $50,000 per farmer would generate $5.3 billion in savings over 10 years.

While ISU's Babcock has been raising Cain over crop insurance costs for years, he said maybe only five people in Congress agreed with his positions when I interviewed him last month. Obviously, some people take crop insurance critics more seriously than that.

See EWG's arguments for more crop insurance cuts at

http://www.ewg.org/…

Follow me on Twitter@MarciaZTaylor





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Comments

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John Olson
8/18/2013 | 6:07 PM CDT
�I have never understood why it is "greed" to want to keep the money you have earned but not greed to want to take somebody else's money.� � Thomas Sowell, Barbarians inside the Gates and Other Controversial Essays
Sandman
8/5/2013 | 12:10 PM CDT
Seems like a lot of envious people on this subject more concerned about what some one else has or is doing than keeping their own house and life in order.
Unknown
7/18/2013 | 4:41 PM CDT
John Olsen is this you? http://youtu.be/NH7OpAGeSio
John Olson
7/6/2013 | 7:33 AM CDT
The right thing for conservatives to do is to not make yourself a target for oppressive big government types fixated on targeting anyone with a conservative view.
Mark Knobloch
7/6/2013 | 6:58 AM CDT
That would be the right thing to do if your "personal" decision is not to identify yourself.
Unknown
7/5/2013 | 11:06 AM CDT
As the writer of the "unknown" post on 7/1 at 5:12 about forward contracting, I can say very confidently that I am not the same writer as the "welfare queen" post. I will most likely never use my real name in any forum, blog, or discussion board - a personal decision. Where I have to put in a "name", it's simply no more than a pen name, kind of like Adam Erwin's columns. Don't be surprised if half the "people" in this blog don't use some sort of pen name. However, I will not use my anonymity as "unknown" to make personal attacks or wildly inflammatory statements. I tried to post a thoughtful, well explained position on the topic. If people don't like that I won't "sign" my name, I simply won't post anymore.
Mark Knobloch
7/4/2013 | 7:49 AM CDT
Marcia, you sure bring up "hot" topics. And by the way unknown, like bonnie says, have the bawls to identify yourself.
John Olson
7/3/2013 | 5:55 PM CDT
USDA's numbers on cost to government for federal crop insurance for many years - see http://www.rma.usda.gov/aboutrma/budget/fycost2003-12.pdf
Bonnie Dukowitz
7/3/2013 | 6:20 AM CDT
Call me what you like. At least I am not a coward, hiding behind a curtain nor ashamed of what I do. I must be the welfare queen who does the donating. One can critisize crop insurance but please be factual. Don't rely on EWG propaganda. Some years the government makes money in this area, some years they do not. Like FEMA, some of the benefits might go to N. Orleans, the next year, to N.York which is how and why all insurance exists.
Unknown
7/2/2013 | 8:21 PM CDT
Bonnie, taxpayers have your back to the the tune of 62% You are a welfare queen
Bonnie Dukowitz
7/1/2013 | 7:55 PM CDT
I agree unknown. Get government out of our lives. In the least I have the bawls to identify myself. Why should I subsidize your savings with FDIC, flood insurance, with FEMA and health insurance thru Medicare, Medicaid and Obummer Care, etc. What goes around, comes around. And you are not supporting my income. It is a benifit earned from sweat of the bawls. If you carry any insurance of any type on any thing, in one way or another, I, and the rest of the tax-paying citizens, are supplementing it with a guarantee backed by the government of some sort. Crop insurance is a pimple on an elephants behind. I could care less if government was reduced to a hundred years ago. We will survive. Will you??
John Olson
7/1/2013 | 7:00 PM CDT
Hogs on full feed are interested in mainly focusing on the feed and the trough. Appears to be a dependency thing.
Eric Sorensen
7/1/2013 | 5:42 PM CDT
Some good dialogue starting here finally. Perspective plays a large part in whether or not a person values the crop insurance system in place in America. What's interesting and very telling is how many other countries are starting to put in place a very similar subsidized program modeled after ours. Australia just had a news piece in June about their new program, and I see other stories about India, China, Mexico, Brazil trying to improve their availability of insurance. Some try to make the point that crop insurance is the reason that crop prices and inputs are high. I would argue if that were so, why did crop prices (namely the largest US crops, corn and soybeans) not escalate far before 2007? Because of demand. The boom of demand from biofuels created an acreage battle for the most productive corn and soybean acres and hasn't let us since. Throw in 3 back-to-back years of below trend line corn yield due to detrimental weather, and the prices climbed a little higher. These will ebb and flow as supply and demand does. So even if crop insurance were not available or subsidized, crops would be worth more, risk would be quite high, someone would still farm the land. I believe it would eventually mean the demise of the family farm. Guys like Bill, who make his money other ways, would end up being the type that could take on the risk of farming while the family farmer could go under with back-to-back woes that some have suffered lately. We would see more corporate farming, not less. There is no way around it, when your commodity is in relative short supply and relatively high demand, it's value will increase. That's why corn was worth less than $2/bushel pre-2007, and soybeans less than $6/bushel. Highly subsidized revenue ins. has been available for years prior to 2007. 1996-ish timeframe it was intoduced as a better answer to farmers' need to hedge against price and production risks that are more volatile than furniture prices. And Bill, no offense, but furniture sales/availability are not close to a national security item in this country. Having incentive for many growers to be willling/able to grow food on a consistent basis is.
Unknown
7/1/2013 | 5:12 PM CDT
I guess the simpleton in me looks at it this way. If the companies, agents, farmers, etc. are guaranteed such profits as the opponents like to say; why don't any of them step up to the plate, start their own insurance company, or get hired on as agent, or walk into their bank and get that farm operating loan - the money is guaranteed to flow it, right? Go read Marcia's blog from 5/21. Truth is, the RMA MADE money from 2006 through 2010. So, if the RMA made a little money, the insurance company made a little money, the agent made a little money, the math doesn't add up for the farmer to make money too. Bill has asked for reasons to keep the program. I'll give you my number one. Most years, the single most important thing you can do besides growing a crop is forward contracting during the preceding winter/spring/summer when supply issues, acreage battles, or weather scares present profitable marketing opportunities. I will concede this has not been the case in 2010, 2011, or 2012; but 2013 is shaping up more that way. We are a profitable, medium sized family farm, and the only way we can stay that way is forward contracting. How does forward contracting depend on crop insurance? Most bankers would disapprove or even not allow forward contracting if the revenue products WITH the harvest price option was not available. The revenue products provide a baseline yield and price factor that you can comfortably contract up to that level. If you forward contract and don't raise the bushels, you get a check to be able to buy grain somewhere to fulfill your contract. Where the harvest price option is VITAL is a year like 2012. If you forward contract, don't raise the bushels, and the market goes up; you have the increased value from the harvest price option to still allow you to fulfill your contract. Very few banks would allow forward contracting with an open ended "margin" possible if the market moves against your forward contract. If we could not forward contract and were forced to "live" with waiting to get whatever price we can get once the physical bushels were secure; we, our medium sized peers, or heaven forbid, smaller farms; would not live very long. Nothing left but boards of directors controlling the supply. Be very careful what you wish for, you might just get it.
Aaron Cross
7/1/2013 | 4:31 PM CDT
Also Bill, and unknown, it really becomes a national security issue when you start talking about food shortages brought on by drought. All one has to do is go back to the historic droughts of the 30's and 50's to figure that out. If that isn't a reason to keep it, I don't know what is. Farmers are giving as much or more than the SNAP recepients as far as the farm bill is concerned. They have been willing to give up direct payments for one. And unknown you are correct I am a cattleman, and I do take the prf, but have opted out of the LRP and LGM insurance programs.
Glenn BRANDS
7/1/2013 | 3:15 PM CDT
For the record, Crop insurance agents make a much less % of premium commission than other lines of insurance. 25-40% less. Let's drop the crop insurance program and make agriculture a socialistic business that is owned and run by the government. Wouldn't that be interesting. Well, it would not be run by the government, the business would be run by a group of very huge vertically integrated corporations that did all of the farming. That is almost as scarey. It would be the collapse of almost all small community banks and communities. It would be mean higher priced food than you could ever imagine. We would all require food stamps in order to attain food because that is how it would distributed. I don't think that you want the future of production agriculture run by either of these options. These corporations (or government) could dictate how much food is grown, who gets it, and how much it will cost. Hmmm, almost sounds like the energy/oil business. I think that I have the makings of a really good movie here. To me, Crop Insurance helps to keep the system in check, to eliminate the above scenario from happening, restore balance, keep food on the table for more than just the farmers, but for all of the plates of people that they fill every day. After all, Farming should be one of the highest paid occupations. Without food, there is nothing or no one. Farmers deserve to be subsidized to keep you fed.
unknown writer
7/1/2013 | 3:06 PM CDT
I agree 100% with Bill. Im a young operartor and would like to get into some cheaper land and equipment, and how am I suppose to do that when people are not aloud to fail? Capitilism is dying in this country, cattle industry is far more independent and they are starving to death with propped up grain prices and land.
Bill Billson
7/1/2013 | 2:38 PM CDT
12 comments deep and no one has has been able to give a small reason to keep the program. It is tough to come up with one. Eric I would end the program and let private nonsubsidized companies sell coverage. If it is too expensive for me TOUGH. I own a furniture business that is much more involved than my 2400 acre farm and there are no subsidies for it. If I dont sell anything I cant sit on my butt and wait for my crop insurance check. If we have an economic calamity in town just like farmers have bad weather I cant take a year off and get paid for stuff I didnt sell like farmers can with PP coverage. A business owner still has to go to work. FACE IT, WE FARMERS ARE SO DEPENDANT ON WELFARE WE CANNOT FEND FOR OUSELVES ANY MORE!
Eric Sorensen
7/1/2013 | 2:15 PM CDT
Bill, I would agree with Aaron's comments above that successful crop ins. agents work very hard and long hours most of the year. One note though on comm. is that we write crop ins. in multiple states, and states like Iowa or any states that operate under the comm. cap will get 8-10% comm. Lately it has been 8.5-9% or so. So states like Iowa do not earn any more commission than a state like Kansas with the cap that has been in place since 2011. Bill, now you have a small idea of what it's like to have fingers pointed at you. Crop ins. agents make a smaller % of comm. vs. other lines of ins. today, so not sure what point you are trying to make about agent comm. What reforms should be taken? Cut the program? No subsidy to farmers? No comm. to agents? What's the right amount? Seems like you claim to have the answers, please share your wisdom oh wealthy and wise one.
Aaron Cross
7/1/2013 | 12:43 PM CDT
Bill, I know that the insurance agents here in KS do not earn that much. 8-10% of premium. I also know that the agents in states like Iowa earn much more. You should check your facts and quit lumping every state with your state. Also, the agents I know work extremely hard most of the year, and it slows down from January to March, but takes off again March 1st. Do some fact checking next time.
Marcia Taylor
7/1/2013 | 10:47 AM CDT
Here's a fact check for the record: One reason for confusion over the "profitability" of the crop insurance industry is that not everyone is using standard terminology to measure profits, an insurance co. exec emailed me. "Part of the reason there is such disagreement and confusion on the rate of return is that the administration and the Kind amendment use 'rate of return on retained premium' as their definition of rate of return," he writes. "The crop insurance industry, as do most businesses, use 'rate of return on investment' or ROI. There is a significant difference between these two calculations. Rate of return on retained premiums measures only the underwriting results after the SRA. It does not consider operating expense or tax. Rate of return on investment is a measurement of the after tax and expense return of the capital invested to operate the business. Under either definition, there is no guarantee of any rate of return and certainly no guarantee of a 14% profit."
Bill Billson
7/1/2013 | 10:21 AM CDT
Eric, I have stated many times before that I do not farm but my entities do. Thus you won't find me on EWG. However, I find it funny that you cannot defend crop insurance one bit instead you try to belittle me. I take my crop insurance and other government welfare and give some to my church and the rest goes to toys and recreation. All I am saying is it seems crazy that the taxpayers of this country are paying for my church, lake cabins, and collector cars when the country is broke and many wage earners are hurting. Eric why dont you speak out for what is best for the country instead of what lines your pockets?
Eric Sorensen
7/1/2013 | 9:30 AM CDT
My guess is that Bill Billson is not really a large farmer at all. I don't know too many people who would fight so hard so often against supporting something that they purport to purchase year after year. Also, if he is a large farmer like he states, he wouldn't have time year 'round to blog about subjects like this -- he'd have more important things to do such as growing and caring for his crops.
Bill Billson
6/30/2013 | 9:47 PM CDT
Crop insurance is welfare for the rich. Wealthy farmers are guaranteed a profit and they continue to run their small counterparts off the land while accumulating huge profits via taxpayer guarantees. Crop agents collect outragous commissions for doing next to nothing. Most agents work about 2 months a year and pull in $100K or more. Heck my agent (family member) collected $20k for servicing my account this year and we didn't even need to meet. The program automatically enrolls you if you don't visit your agent yet the agent collects huge commissions while playing golf. I think the crop insurance program makes SNAP look fiscally responsible. Farmers are just lucky the mainstream media and regular tax payers haven't picked up on this fleecing of america or it would be OVER.
Unknown
6/30/2013 | 7:40 PM CDT
Bonnie, why must I guarantee your livelihood? If your local coffee shop serves greasy eggs on dirty plates, should they also be kept in business? I'm all for crop insurance, but why do I have to pay for your insurance?
Bonnie Dukowitz
6/29/2013 | 12:13 PM CDT
Some are blinded by a single issue. The Food Security and Jobs Act is very complex. Without the small, farm portion, the supplemental portion would grow in immense proportion. A foriegn food supply would be more dangerous than the energy situation. There was nothing pleasant about the soup lines of yesteryear, which is why the Food Bill developed. Part of that concept was to see that the producers could stay in business. I am not defending policy. Look, however, at the entire picture.
John Olson
6/29/2013 | 7:53 AM CDT
It really is not that complicated. FCI routinely, not always, covers the majority of land costs. Many farmers small and large do not have land costs other than real estate taxes. Certainly schemes that cover the majority of land costs where there are no land costs would constitute a profit guarantee. Larger farmers without land debt would receive the benefit of greater profit guarantees compared to those with less. Most understand that some of the farm subsidies flowing to farmers comes back to Washington and influences farm policy.
Bonnie Dukowitz
6/29/2013 | 5:48 AM CDT
What group is more of a tax subsidy, tax exempt, dependant organization than the EWG? Seems corrupt to me the group can use their tax exempt fortunes to buy influence in D.C. and the world. At least the farm groups spend their own money. I agree with reducing tax payer expense in many areas of government especially the tax exempt, such as EWG, Nature Consercancy and also extreme profits through multiple claims from the entire insurance industry. To believe crop insurance guarantees an ongoing profit for big farmers is absurd. We are small farmers and very thankfull that a crop insurance program is available. Crop insurance is the most sensible part of the Food Bill. It allows survival of farming after a disaster. Ad-hoc disaster programs come way to late and become a huge pork program.
John Olson
6/28/2013 | 6:09 PM CDT
Definitely time to slay the insane government crop insurance schemes that make small farmers work harder for less profit as well as play a major role in driving up prices of land and particularly marginal land. Take the time to thank any politician with the guts to vote against this pathetic tsunami of crony capitalism.