Budget deal tries to raid crop insuranceBudget deal tries to raid crop insurance
October 30, 2015
THE White House and congressional leaders reached an agreement on a deal that would raise the discretionary budget caps established by the Bipartisan Budget Act of 2013. The deal includes cuts to crop insurance.
However, leaders later agreed to take out those cuts in the omnibus spending bill to be voted on yet this year after agricultural groups and top agriculture committee members said they would oppose the budget deal if the crop insurance cuts were not removed.
Under the agreement, which was approved by both chambers, discretionary spending would increase by $50 billion in fiscal 2016 and by $30 billion in fiscal 2017. The measure would also raise the debt ceiling.
The higher spending levels could potentially direct additional appropriations to agencies such as the Food & Drug Administration to help fund the Food Safety Modernization Act, which rolls out in 2016.
In the backroom deal, however, chairmen of the agriculture committees were left out of a discussion that would have raided the farm bill and opened up its coffers just a year after the five-year farm bill was put to bed.
The legislation would require the Standard Reinsurance Agreement for crop insurance to be renegotiated by the end of 2016, which would cut an estimated $3 billion from the public/private crop insurance delivery system.
The top leaders of the Senate and House agriculture committees all were united in their opposition to the budget deal, emphasizing that the proposed cuts to crop insurance in the budget agreement would undermine a critical risk management tool for agricultural producers. They also argued that they offered $23 billion in "savings" during the farm bill debate and should not be asked to carry an additional burden.
"Leadership has heeded our concerns by agreeing to completely reverse this disastrous provision in the upcoming omnibus," House Agriculture Committee chairman Michael Conaway (R., Texas) said. "Crop insurance is working as intended, and private industry deserves to be lauded, not thrown under the bus."
The crop insurance cuts called for slashing the target rate of return for crop insurance companies from 14.0% to 8.9%. Previously, the Administration had proposed only a 12% cut, which agricultural groups had also opposed.
Joshua Woodard, assistant professor of agricultural business and finance at Cornell University's Dyson School of Applied Economics & Management, said the proposed cuts, if adopted, would increase premiums, lead to lower uptake by farmers and further discourage providers from participating in federal crop insurance programs.
"There has been a plethora of changes in the federal crop insurance program in the last few years that have made it far less profitable for private insurers. Further reductions in farmer participation on top of that, coupled with a capping of company returns as in the proposal, could very well lead to more companies exiting the market," Woodard warned.
He noted that many of the larger agribusiness players are already in the process of exiting the market, perhaps because it has become far less attractive from an underwriting perspective.
Just this year, John Deere completed the sale of its crop insurance business. Climate Corp., the crop insurance arm of Monsanto, recently left the federal crop insurance market as well, and Wells Fargo has put its crop insurance business up for sale.
David Graves, president of the American Association of Crop Insurers, said should the budget proposal become law, it will result in a further reduction — if not the elimination — of private capital in the delivery of federal crop insurance.
"In that case, if the program is continued, it would revert to government delivery and servicing," Graves said. "When given the choice in the 1980s, farmers ran to private-sector delivery because of the service factor or value. Nothing has changed regarding the government's ability to efficiently and effectively sell and service policies."
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