April 1998
Federal Crop Insurance Failing Northern Growers
By Tracy Sayler
Library
Home
E-Mail
Back
Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
It is faltering in several ways:
Inadequate price elections that are not keeping pace with rising premium costs;
Spring wheat quality adjustments that do not reflect actual marketplace discounts;
A declining Actual Production History that is eroding coverage guarantee for standard MPCI policies and increasing Nonstandard Classification;
Five years of adverse weather conditions and crop disease in eastern North Dakota and western Minnesota has made the crop insurance problems worse. Poor crop insurance coverage is making it more difficult for some farmers to get farm credit. "Multi-peril crop insurance is only covering 65% of now a poor crop when in actuality it takes 85% of a good crop just to cover cash expenditures," says Roger Philipp, vice president of First National Bank in Thief River Falls, MN.
Risk Management Agency Administrator Ken Ackerman (middle) was in MN and ND last winter by invitation of Representatives Collin Peterson (D-MN, left) and Earl Pomeroy (DD-ND, right) to discuss crop insurance concerns with growers.
Risk Management Agency Administrator Ken Ackerman was in Crookston, MN and Valley City, ND, last winter by invitation of Representatives Collin Peterson (D-MN) and Earl Pomeroy (D-ND) to discuss crop insurance concerns with growers in the region.
Ackerman acknowledged that there are problems.
"Crop insurance works very well when you have one year of loss, but three or four, that does have an impact on APH, yield, and more importantly, the farm itself," he said, but pointed out too that crop insurance "is not designed to be a replacement for farm income; it's rather a safety net."
But, an inadequate safety net. "Crop insurance is being looked at to pick up the slack, when in reality it's going south," said Pomeroy.
The MAWG urged Ackerman to fix the decline of Actual Production History (APH) yields due to multiple years of crop disaster. "Declared disaster years need to be removed from the APH calculation," said Tim Dufault, MAWG President. The MAWG urged Ackerman to make other changes as well:
Review regional disparities in crop insurance policies: for example, why, according to one private carrier's calculations, is there a lower premium by $2.03 for wheat, $2.43 for soybeans, and $2.83 for canola in Pembina County, N.D. compared to Kittson County, Minn., which is just across the Red River?
Recalculate methodology for quality adjustments.
Improve the current APH plan with federal support of premiums at the 75% coverage level for an economic unit, accomplished perhaps with adjustments to catastrophic (CAT) coverage.
Implement a significant premium discount or increased coverage for combining yield and price for all crops in a producer's rotation in one enterprise unit, or total farm production coverage.
Improve Crop Revenue Coverage (CRC) by changing or extending the base price.
Consider coverage based on a dollar value rather than bushel per acre. A pilot program could be implemented, patterned after private hail insurance, under which the producer would select a dollar amount per acre coverage (not to exceed the value of the crop). The FCIC could set the dollar (or bushel) deductible with the corresponding rate and dollar amount of liability wished to be purchased.
Offer a gross dollar per acre or total gross farm sales plan. One concept proposed by World Perspective Inc, headed by Carol Brookins in Washington, D.C., would form a Farm Production Insurance Corporation. The FPIC would be an independent federal agency to issue insurance for gross production revenues of a farm. FPIC would serve as a federal re-insurance corporation for the insurance industry, similar to the FDIC in the banking industry. Farmers would rely on private insurance for farm revenue up to 50% of a producer-determined amount of gross sales revenue. Revenue losses in excess of 50% would be indemnified by the FPIC to a cap $250,000.
In 1999, either 1) improve existing coverage or 2) implement a pilot program to meet the risk management needs of Northern Plains farmers. This may also be used as a precursor to form a nationwide plan after the 1996 Farm Bill expires in 2002.
Ackerman said that a pilot program with higher yield coverage may be possible next year, but there might be a tradeoff, such as less unit or premium cost.
Peterson warned that getting crop insurance reform through Washington will be difficult: "There are people in Congress who believe that five years in a row of losses means farmers are farming the system, similar to rebuilding time and again in a floodplain," he said.