Monday, April 18, 2016

Understanding Crop Insurance: Historical Perspective—Part 3

Written by M. Sean High—Staff Attorney

Growing Pains
With the passage of the Federal Crop Insurance Act of 1938, federal crop insurance was initially only available for wheat planted in 1939.  To administer the crop insurance program, the enacted legislation created the Federal Crop Insurance Corporation (FCIC), an agency within the United States Department of Agriculture.  Accordingly, FCIC was to be managed by “a board of directors appointed by the Secretary of Agriculture.”[1]

The first version of federal crop insurance was “authorized for wheat planted for harvest in 1939” and provided coverage for losses resulting from “drought, flood, hail, wind, winterkill, lightning, tornado, insect infestation, plant disease, and such other unavoidable causes as may be determined by the Board.”[2] This initial version of federal crop insurance, however, did not prove to be successful.

In the first year of its offering, the crop insurance program made indemnity payments to nearly one-third of all the 165,775 enrolled farmers.[3]  Significantly, overall national participation in the program was relatively low which led to these indemnity payments greatly exceeding the total premiums received.[4] While participation in the program would gradually increase in 1940 to 360,596 farms and in 1941 to 371,392 farms, these relatively low enrollment numbers resulted in the program losing money each year as indemnity payments made to farmers continued to exceed the total amount of premiums collected.[5]

In 1941, the federal crop insurance program was expanded to include coverage for cotton.  Subsequently, in 1942 and 1943, crop insurance results for cotton and wheat mirrored those for wheat alone as “[i]ndemnities greatly exceeded premiums during both years.”[6] As a result of these poor performances, in 1943, Congress passed legislation that “prohibited the FCIC from writing any new crop insurance policies after 31 July 1943.”[7] Nevertheless, the suspension of the crop insurance program would prove to be temporary.

In late 1944, in an attempted to correct the problems with the original version of crop insurance, Congress passed legislation that amended the Agricultural Adjustment Act of 1938.   The result of the amendment was not only a restoration of crop insurance, but an expansion the program.

Under the 1944 amendment, FCIC was authorization to provide crop insurance coverage for not only wheat and cotton, but also for flax crops.  Additionally, policies could now be written to “include losses resulting from frost, fire, excessive rain, snow, wildlife, and hurricane.”[8] Importantly, coverage was restricted to certain designated counties and FCIC was given the power “to refuse to sell insurance in high-risk areas.”[9]

Significant to achieving the goal of expanded program participation, the new legislation authorized FCIC to begin implementing “experimental crop insurance programs for ‘corn, dry beans, oats, barley, rye, tobacco, rice, peanuts, soybeans, sugar beets, sugar-cane, timber and forests, potatoes and other vegetables, citrus and other fruits, tame hay, and any other agricultural commodity, if sufficient actuarial data are available.’”[10] Immediately, FCIC began offering crop insurance “on a trial basis in 1945 for corn in fifteen counties and tobacco in twelve.”[11]      

[1] Federal Crop Insurance, Randall A. Kramer, Agricultural History, Vol. 57, No. 2 (Apr., 1983), p. 188
[2] Id.
[3] Id. at p. 189
[4] Id.
[5] Id.
[6] Id. at p. 191
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id. at p. 192

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