The article provides a brief outline of the Federal Crop Insurance Corporation and federal crop insurance. A basic description of the current Common Crop Insurance Policy is included.

Topics covered:

Introduction Common Crop Insurance Policy Other Types of Policies

Introduction

The Federal Crop Insurance Corporation (FCIC) was created in 1938 following the devastating effects on farmers of the Great Depression and the Dust Bowl in the 1930s. The FCIC was created to carry out the program and was initially of an experimental nature. Crop insurance was limited chiefly to major crops in the main producing areas; for example, wheat in the Midwest.

In 1980, Congress passed the Federal Crop Insurance Act, which expanded the program and attempted to make the insurance preferable to the disaster compensation offered under various farm bills. It was not until 1994 that the Federal Crop Insurance Reform Act made participation in the crop insurance program mandatory for farmers to be eligible for deficiency payments under price support programs, certain loans, and other benefits. Because the insurance became mandatory, catastrophe coverage was created to compensate farmers for losses exceeding 50 percent of an average yield, paid at 60 percent of the established price for the particular crop for that year. The premium for the coverage was subsidized.

Congress repealed the mandatory participation requirement in 1996, but any farmer who accepted other benefits was required to purchase insurance or waive any disaster benefits that might be available.

The role of the private sector was expanded when Congress enacted legislation allowing entities to conduct research and develop new products.

Today, there is both a public and a private sector involvement in providing the insurance. Insurance is sold, written, and serviced through private insurers called Approved Insurance Providers (AIP) and reinsured by the federal government. The program is administered by the Risk Management Agency (RMA), a part of the U.S. Department of Agriculture since 1996.

Common Crop Insurance Policy

The Risk Management Agency (RMA) provides policies (again, written through private insurers) for more than 100 crops. The common crop policy is underwritten by the FCIC.

For noninsurable crops, the Noninsured Crop Disaster Assistance Program, managed by the USDA Farm Service Agency, provides financial assistance to producers (note: “producer” in this sense means “grower” or “farmer,” not “producer” as in “insurance agent”) when there is a low yield, loss of inventory, or when the producer is prevented from planting because of natural disasters.

The 2011 program provides various coverages for the following: almond, apple, avocado, barley, bean, blueberry, buckwheat, cabbage, canola and rapeseed, cherry pilot, chili pepper pilot, citrus fruit, citrus fruit pilot, citrus trees, corn, corn pilot, cotton, cottonseed pilot, cranberry, cultivated clams pilot, cultivated wild rice, fig, flax–small grains, Florida fruit trees pilot, forage, forage seed pilot, fresh market bean, grain sorghum, grape and table grape, grass seed pilot, Hawaii tropical fruit pilot, Hawaii tropical trees pilot, hybrid seed, macadamia, millet, mint, mustard, nursery, nursery pilot, pea, peach, peanut, pear, pecan revenue, pepper (fresh market), plum, popcorn, potato, prune, pumpkin, raisin, rice, rye–small grains, safflower, sesame, silage sorghum pilot, soybeans, stonefruit, sugar beet, sugar beet pilot, sugarcane, sunflower, sweet corn, sweet potato (Louisiana), tobacco, tomato, walnut, and wheat. The 2012 program will include some additional categories, such as apiculture pilot and pasture, rangeland, and forage pilot.

The common policy was revised in 2010. Some of the sections the form contains are as follows:

Definitions. This section contains several pages of terms, mostly specific to crop insurance, and their definitions. Some examples of defined terms include double crop, harvest price, replanted crop, and tilled.

Life of Policy, Cancellation, and Termination. The policy is continuous, but the FCIC may change the coverage from year-to-year.

Insurance Guarantees, Coverage Levels, and Prices. The production guarantee or amount of insurance, unit price of indemnity, and coverage level will be calculated the same way as the summary of coverage for each crop year.

Contract Changes. The FCIC may change the terms of the coverage from year-to-year.

Report of Acreage. The insured must submit a report for each insured crop.

Annual Premium and Administrative Fees. The annual premium is payable at the time coverage begins.

Insured Crop. The insured crop is shown on the accepted application or specified in the crop provisions or special provisions. The crop must be grown on insurable acreage.

Insurable Acreage. All acreage planted to the insured crop is insurable if it has been planted and harvested or insured in any one of the three previous crop years. Exceptions apply for compliance with USDA programs, crop rotation, or of the acreage contained perennial vine, bush, or tree crops in two of the previous three years.

Share Insured. The person completing the application must have a share in the crop.

Insurance Period. Coverage begins the later of the acceptance of the application, the date the insured crop is planted, or the date contained in the crop provisions. Coverage ends the earliest of the date of total destruction of the crop, harvest of the crop, final adjustment of loss, the date contained in the crop provisions, abandonment of the crop, as otherwise specified.

Causes of Loss. Only naturally occurring, unavoidable events are covered. Failure to follow good farming practices and failure of irrigation equipment are among the causes of loss that are not covered.

Replanting Repayment. A replanting repayment may be made if the acreage is twenty acres or 20 percent of the insured planted acreage, whichever is less.

Duties in the Event of Damage, Loss, Abandonment, Destruction, or Alternative use of Crop or Acreage. Some of the provisions are similar to standard duties for property insurance policies. Notable duties specific to crop insurance include leaving representative samples of the unharvested crop intact until requested or inspected by the insurer and obtaining consent before putting the insured crop or acreage to another use.

Conformity to Food Security Act. The policy will be cancelled if the insured has violated the controlled substance provisions of the Food Security Act.

Multiple Benefits. An insured may receive benefits both under this policy and any other USDA program unless limited by the contract or by law, not to exceed the actual amount of the loss.

Organic Farming Practices. The policy will not cover crops grown using organic farming practices unless a rate is available in the actuarial table. If it is allowed, only certified organic acreage, transitional acreage being converted to certified organic acreage, and buffer zone acreage is eligible.

Other Types of Policies

Other types of policies are available, though some are not available nationwide (check with a local agent or through RMA). Copies of many policies are available on the RMA Web site, as are maps, statistics, and information by state.

There are two main types of policies: yield based, which, as the name implies, are based on the yield of the insured crop, and revenue-based policies, which respond to a revenue for any particular crop less than the insured revenue.

There are three types of yield-based policies. The first is the Actual Production History (APH) policy, which insures producers against yield losses due to natural causes. The producer selects the average yield he or she wishes to insure, usually between 50 and 75 percent (in some areas, up to 85 percent), and the percentage of the predicted price, which is between 55 and 100 percent of the crop price established annually by RMA. If the harvest is less than the yield, the farmer is paid an indemnity based on the difference.

The second is the Group Risk Plan (GRP). These types of policies use a county index as the basis for determining a loss. If the county yield for the insured crop falls below the level chosen by the producer, an indemnity is paid. Payments in this instance are not based on the individual farmer's loss.

The third type is called a Dollar Plan, which provides protection against declining value. The amount of insurance is based on the cost of growing a crop in a specific area. Loss occurs when the annual value of the crop is less than the amount of insurance. The insured can select a percent of the maximum dollar amount equal to the CAT level of coverage, or additional coverage levels.

The revenue insurance plans include the Group Risk Income Protection (GRIP), which pays when the average county revenue for the insured crop falls below the insured level of revenue selected by the farmer. The Adjusted Gross Revenue (AGR) insures revenue of an entire farm rather than the individual crops. Crop Revenue Coverage (CRC) pays for losses below the guarantee at the higher of an early-season price or the harvest price. Income Protection (IP) protects against reductions in gross income when either a crop's price or yield declines from early-season expectations. Finally, Revenue Assurance (RA) provides dollar-denominated coverage by the producer's selection of a dollar amount of target revenue from a range defined by 65 to 75 percent of expected revenue.