Wednesday, April 20, 2016

Understanding Crop Insurance: Historical Perspective—Part 4

Written by M. Sean High—Staff Attorney

Stabilization and Expansion
After the 1944 amendments to the Agricultural Adjustment Act of 1938 provided reauthorization for federal crop insurance, the program gradually began to show improvement.  Significantly, in 1947, for the first time, premiums collected exceeded indemnity payments on combined operations.[1] Additionally, from 1948-1952 the total surplus of premiums collected exceeded indemnity payments by $2.25 million.[2]

Perhaps more importantly, the federal crop insurance program offered many farmers a valuable tool for handling uncontrollable operating factors.  Significantly, just as drought conditions in “the 1930s provided impetus for the establishment of government-sponsored crop insurance, so did the drought of the early 1950s demonstrate the continued benefits of the program.”[3] Accordingly, “[i]n 1951 and 1952, indemnities totaled $42 million and enabled many farmers to continue operations on a scale not otherwise possible.”[4]   

Throughout the 1950s, crop insurance continued to achieve financial stability.  Of note, for every year from 1957-1961, the total surplus of premiums collected exceeded total indemnity payments.[5] 

During the 1960s, the Federal Crop Insurance Corporation (FCIC) undertook a concerted effort to expand the program’s coverage numbers.  The effect was an increase in total coverage from $271 million in 1959 to $920 million in 1969.[6] Unfortunately, along with rapid program expansion, “[p]remiums did not keep pace with liabilities and indemnities.”[7]

As a result, in 1970, the Secretary of Agriculture formed a task force, consisting of nongovernmental insurance experts, to investigate FCIC practices.[8]  Ultimately, the task force determined that FCIC had incorrectly chosen to set crop insurance premiums through the use of a countywide base.  Instead, the task force proposed that the program should set premiums “based on individual farm risks.”[9]

In 1977, the General Accounting Office (GAO) released a report supporting the task force’s assertion that the federal crop insurance program would be better served basing premiums on individual farm risks.  According to GAO, a crop insurance program “based on rates individualized by farm…[would] be more equitable because the premium rate and amount of coverage would be based on the farm’s actual yield history.”[10] Furthermore, GAO “suggested that individualized protection would particularly increase participation among low-risk producers who would enjoy lower premiums and/or higher coverage than under the existing areawide system.”[11]

In response to GAO’s recommendations, “FCIC instituted a pilot program of individualized crop insurance in twenty counties for the 1978 crop year.”[12] In 1979, the pilot program was expanded to offer individualized crop insurance in forty counties.

In 1980 federal crop insurance underwent its most dramatic expansion with the enactment of the Federal Crop Insurance Act of 1980.  Designed to become the primary tool for providing farmers with disaster protection, the legislation “removed annual limits on expansion, previously set at 150 counties and three commodities, and authorized the expansion of the program to all counties with significant amounts of agriculture.”[13] Perhaps of greatest significance, to encourage participation in the crop insurance program, the Federal Crop Insurance Act of 1980 explicitly authorized the subsidizing of crop insurance premiums.[14]

Farmer response to the new program was resoundingly positive.  As a result, in 1981 total acreage insured under the crop insurance program increased by 81%; up from 26.3 million acres to 47.7 million acres.[15]   

[1] Federal Crop Insurance 1938-1982, Randall A. Kramer, Agricultural History, Vol. 57, No. 2 (Apr., 1983), p. 193
[2] Id at p. 194
[3] Id at p. 193
[4] Id.
[5] Id at p. 195
[6] Id at pp. 195-196
[7] Id at p. 196
[8] Id
[9] Id
[10] Id at p. 197
[11] Id
[12] Id
[13] Id at p. 198
[14] Id
[15] Id at p. 199

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