Farmers, Analysts Respond to Stabenow’s Crop Insurance/Safety Net Proposals
Pushback is evident as ag stakeholders await next steps in long farm bill process
Senate Ag Chair Debbie Stabenow (D-Mich.) has certainly garnered a lot of attention following her Dear Colleague letter outlining her proposal for strengthening the farm safety net in a new farm bill (link).
Her vision for modernizing the safety net centers around five key principles:
- programs must be targeted to active farmers;
- need to provide farmers choices and flexibility;
- assistance should be timely;
- need to expand the reach of programs to help more farmers; and
- need to address the emerging risks farmers face.
Most of the discussion, if not debate, centers on her views on crop insurance, which she says is a key tool that meaningfully advances each of the five listed goals. “Whether I’m talking to farmers at a hearing, field day, or local diner, they all emphasize the importance of crop insurance,” Stabenow wrote. “Over time, we have made meaningful improvements, provided more choices for existing coverage, and expanded its reach to cover more crops, varieties, areas, and types of production.”
Crop insurance is working, Stabenow and other lawmakers and farmers concur. It now covers more than 600 varieties of 134 crops across the country. Nearly $200 billion in crop value is insured. Stabenow details this is an increase of over $50 billion since the last farm bill, which was driven by new livestock policies and area plans. “This critical tool provided nearly $30 billion in timely support in 2022 and 2023 so far. Other tools, while helpful, often take a year or more after a disaster for assistance to reach farmers,” she observes.
Stabenow echoes what farmers say they need more of when it comes to insurance: coverage for a greater share of the risk, better affordability, and a more straightforward and streamlined process.
The comments garnering the most focus is when Stabenow said “The 2018 Farm Bill provided cotton farmers with a choice between the traditional base acre programs and a highly subsidized and streamlined area-based crop insurance policy. The next farm bill should give a similar option to all commodities.”
Of note: STAX was offered to cotton producers instead of Title I to settle a Brazil trade case. Analysts and cotton producers say it proved inadequate. Congress restored cotton to Title I in 2018. Cotton had to fully pay for its inclusion. Cotton farmers could not get STAX and Title I because the choice was a budget offset solution. Many cotton producers are now asking that this forced choice be lifted. Says one farm program analyst: “Neither cotton farmers or other farmers want to have to choose between two safety nets that are designed to address different things.”
Some possible details, subject to change, were obtained about Stabenow’s proposal from her staff. In brief, some highlights:
- Farmers can keep what they have now…
- Or, they can choose annually between whatever ARC and PLC is in place OR improved area-wide crop insurance programs, but not both. In her letter, Stabenow wrote: “We can provide farmers the option to pick what tools work best for their crops, region, and farm. No mandates, just more options.”
- The proposal apparently would boost the premium subsidy for area-wide programs by 15 percentage points at a cost of around $1 billion over ten years, according to an initial score from the Congressional Budget Office (CBO).
- CBO reportedly assumes farmers would keep ARC/PLC most years, but that depends on price levels near the farmer’s annual program selection time.
The area-wide programs mentioned in Stabenow’s proposal are SCO and ECO policies. Enhanced Coverage Option (ECO) and Supplemental Coverage Option (SCO) are area-based coverage that can be added to an underlying individual plan of insurance. The only way a farmer can currently choose SCO is if they are enrolled in the PLC program, not ARC.
To add ECO, a farmer must have one of the following plans:
• Revenue Protection (RP)
• Revenue Protection with Harvest Price Exclusion (RP-HPE)
• Yield Protection
Note: Since ECO is county based, a farmer could incur losses on the farm but not receive an ECO indemnity. Similarly, the ECO endorsement could pay an indemnity at times when the farmer doesn’t have a claim on the individual farm.
Farmers can customize their protection
Producers can purchase coverage levels from 86% to 90% or 86% to 95% of the county-expected crop values. This allows for a gap in coverage between underlying MPCI and ECO coverage. |
Premiums are subsidized at a rate of 44% when combined with an RP policy and 51% with a YP policy.
Farmers can also add an SCO endorsement. This provides coverage from the underlying MPCI policy coverage level up to 86%. But remember when making your election at FSA (by March 15), a participant cannot elect ARC and remain eligible for SCO.
Reaction to Stabenow’s crop insurance/farm program choice has been quick, based on talks with producers and analysts.
With the existing ECO, several farmers said that while they see advantages in the program, the cost ratio is just too significant to make it viable for them. That suggests ECO and SCO could become more a farmer focus should premiums be further subsidized by 15 percentage points.
Note: While SCO and ECO are area-based programs, some crop insurance companies/agents offer individual/farm-based options. These are called different names.
Farmers want to know if Reference Prices (RPs) will be increased from current and projected levels under the 2018 Farm Bill. The cost of even a 10% boost in RPs is deemed by many to be too substantial based on some Capitol Hill insiders, especially with lawmakers having a hard time finding additional funding beyond the $1.51 trillion cost of the bill over ten years.
There has been chatter that some commodities like rice and peanuts could see a RP boost as planted acres of those commodities are far below those for corn and soybeans and thus would not cost nearly as much as including all major program crops.
Stabenow, in her Dear Colleague letter, said: The 2018 Farm Bill created an “effective reference price for PLC that tracks the price of commodities and increases support to farmers in a market-oriented fashion. This means that under existing law half of the program crops and more than 90% of the program acres are going to see an automatic 10-15% increase in their reference price over the next few years. I am open to proposals that would make sure every covered commodity receives an increase under an ‘effective reference price’.”
Says one farm policy contact: “So, you can keep what you have…but that clearly doesn’t work because cost of production has increased 35% over the last decade. If you want to keep what you had, you now have to shoot yourself in the foot by taking improved crop insurance off the table? If they can make those improvements to areawide insurance for $1 billion, why haven’t they already done it and stopped all of this ERP madness at USDA?”
One veteran farm bill observer sums it up this way: “Chairwoman Stabenow is advocating for a choice between PLC/ARC generally at CURRENT reference prices OR a STAX type (area wide) policy. But farm groups and many key lawmakers advocate PLC/ARC at HIGHER reference prices AND enhanced CI premium support at BOTH the individual and area wide basis (because for many if not most farmers individual coverage works far better than area coverage while for some farmers area coverage stacked on top of individual coverage is effective enough).” (Note: As noted previously, Stabenow said she was “open to proposals that would make sure every covered commodity receives an increase under an ‘effective reference price’.”
Another farm program analyst says: “This is a good way to think about things: Crop insurance is designed to address production/revenue losses as well as price swings within a crop year. In the normal to high commodity price years, crop insurance is all what many producers need. But sustained periods of depressed commodity prices are not covered by crop insurance. Crop insurance wasn’t designed for that. It is similar to your home insurance not being designed to help you with no income or low income. Farmers need both kinds of protection. Having to choose one or the other is not a fair choice any more than forcing a farmer to choose between the commodity title and conservation title. They are two different policies that address two separate kinds of issues.”
Another farm bill watcher emailed this reaction: “Farm groups — and many lawmakers — are calling for: (1) higher reference prices for producers; and (2) higher premium support for individual and area wide coverage. The requests are meant to deal with different issues. Higher reference prices are meant to address prolonged periods of depressed prices. Prices are already below break even. This makes higher reference prices critically important. Crop insurance does not address periods of prolonged multiple year low prices. Crop insurance premium support increases are also important but for different reasons. Some farmers have low crop insurance coverage. That means they have big deductibles. Higher premium support is intended to address this. Farm groups and key lawmakers support addressing both of these issues. They believe there needs to be some farm in the farm bill. The gives farmers a choice between two things that they need. It is like asking would you like your car or your house? You have a choice. Which do you want?”
A positive regarding boosting premium subsidies for SCO and ECO is that this would lessen the need for ad hoc disaster programs and get the money to farmers far faster than do current disaster aid programs which usually come at least a year after the disaster.
Others note that Stabenow is trying to offer producers options because of limited funding. Recall that Stabenow has an additional $5 billion to work with that has been provided via a commitment from Senate Majority Leader Chuck Schumer (D-N.Y.). Further funding and program flexibility has been suggested by some lawmakers and USDA Secretary Tom Vilsack relative to tapping the Commodity Credit Corporation Charter Act. This topic may be addressed when Vilsack goes before House and Senate congressional panels in February.
Stabenow said the Ag Committee can also continue to expand crop insurance options to more specialty crop and livestock producers while making crop insurance more affordable for beginning farmers. “This means improving and streamlining policies like the Whole Farm Revenue Protection and Micro Farm Insurance programs to help small and diversified farmers. But it also means making sure there are agents and companies marketing the improved options in the places and communities where there is unmet need. We need to make sure USDA has the right tools to step in if farmers or agents are being denied or discouraged from certain insurance products.”
Meanwhile, Stabenow believes the cost of production is an issue that should be addressed, but that it is better handled by a tool other than the ARC/PLC programs. This portion of her Dear Colleague letter captures her thrust:
“The Farm Bill is not just an opportunity to improve and modernize the current set of tools. It is also our chance to take stock of the emerging challenges we face and develop new tools to support farmers. Talk to any farmer and you will hear about supply chain challenges and higher input costs and interest rates eating into their already razor-thin margins. This is especially true for beginning, small, and medium-sized farms, where one bad stretch of weather or turn in the markets can put the whole operation in jeopardy. Aside from dairy’s margin safety net and a few row crops, most farmers have limited tools to protect against this kind of risk. Instead of spreading taxpayer dollars to investors and absentee landlords, who often capture benefits under the existing programs, the new Farm Bill should use the tools that directly target assistance to the farmers bearing these risks. The Committee can address risks from high costs by improving marketing assistance loans, which provide timely assistance through a price floor, and ensure access to affordable credit and other financing tools to help farms facing high interest rates. Looking to the future, we should develop new crop insurance policies that protect against high costs, low margins, and the costs from business disruptions from diseases like avian influenza.”
Bottom line: Stabenow has put pen to paper and certainly got the discussion going. Initial reaction shows ample pushback regarding the annual choice. There are always differences in farm policy initiatives wanted, and in current years some major differences among political parties. Her proposal is a start, but it is not finding much support in some sectors. Now the wait is on for counter proposals and whether there is adequate funding for those plans. As Stabenow concluded in her Dear Colleague letter: “This may be my last farm bill, but it’s not my first. If we’re going to get a farm bill done this spring to keep farmers farming, it’s time to get serious. I look forward to continuing our bipartisan work to get it done.” House Ag Chair G.T. Thompson (R-Pa.) has said he will not lay down a Chairman’s Mark until the House is in for three consecutive weeks. That takes us into March.
As for the new farm bill timing, most still think this will be punted into 2025. But Stabenow has a history of getting the farm bill to the end zone. Sources say if one isn’t evident into May of this year, then the naysayers will be correct (much into May would likely mean a different budget scoring baseline). And with the post-election 2025 bringing renewed debate on budget deficits and overall U.S. debt, this year may be preferable for Congress to get its work done rather than punting still another important measure down the road.
