For other versions of this document, see http://wikileaks.org/wiki/CRS-RL34207 ------------------------------------------------------------------------------ Order Code RL34207 Crop Insurance and Disaster Assistance in the 2008 Farm Bill Updated June 20, 2008 Ralph M. Chite Specialist in Agricultural Policy Resources, Science, and Industry Division Crop Insurance and Disaster Assistance in the 2008 Farm Bill Summary The federal government has relied primarily on two policy tools in recent years to help mitigate the financial losses experienced by crop farmers as a result of natural disasters -- a federal crop insurance program and congressionally mandated ad-hoc crop disaster payments. Congress has made several modifications to the crop insurance program since the 1980s, in an effort to forestall the demand for supplemental disaster payments. Although the scope of the crop insurance program has widened significantly over the past 25 years, the anticipated goal of crop insurance replacing disaster payments has not been achieved. Although the federal crop insurance program is permanently authorized and hence does not require periodic reauthorization, modifications to the crop insurance program were made in the context of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill). Some policymakers viewed the crop insurance program as a potential target for program cost reductions, and proposed using these savings to fund new initiatives in various titles of the farm bill. Consequently, many of the crop insurance provisions are cost-saving measures. According to Congressional Budget Office estimates, the crop insurance provisions (Title XII) in the 2008 farm bill will reduce program outlays by $3.9 billion over the five-year period of the bill (FY2008-FY2012). Much of the savings ($2.8 billion) is achieved through a change in the timing of crop insurance payments and receipts that will not directly affect the final monetary amounts for participating farmers or insurance companies. The rest of the savings is generated through increased fees paid by farmers for catastrophic coverage and a reduction in reimbursements to the participating insurance companies for their operating expenses, among many other provisions. To address concerns about program waste, fraud, and abuse, the farm bill also authorizes up to $4 million annually for data mining activities beginning in FY2009. Separately, Title XV of the 2008 farm bill authorizes a new $3.8 billion trust fund to cover the cost of making agricultural disaster assistance available on an ongoing basis over the next four years through five new programs. The largest program is a supplemental revenue assistance payment program for crop producers that is designed to compensate eligible producers for a portion of crop losses that are not eligible for an indemnity payment under the crop insurance program. To be eligible for a payment, a producer must be either in or contiguous to a county that has been declared a disaster area by either the President or the Secretary of Agriculture. An eligible producer also is required to have purchased crop insurance in advance of a disaster. However, the statute makes an exception for the 2008 crop year by allowing uninsured producers to be eligible, as long as they pay the equivalent administrative fee for coverage within 90 days of enactment. For a description of all crop insurance provisions in the enacted 2008 farm bill, and a comparison of the provisions with the House- and Senate-passed versions of the bill and previous law, see Appendix A at the end of this report. Contents Crop Insurance Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Crop Insurance And Disaster Provisions in the 2008 Farm Bill . . . . . . . . . . 4 Reducing Crop Insurance Program Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Timing of Crop Insurance Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Insurance Company Reimbursements and Loss Sharing . . . . . . . . . . . . 5 Farmer Subsidy and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Waste, Fraud, and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Agricultural Disaster Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Supplemental Crop Revenue Assistance Program . . . . . . . . . . . . . . . . . 7 Other Authorized Disaster Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Disaster Program Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 List of Figures Figure 1. Crop Insurance and Disaster Payments:Total Federal Cost, by Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 List of Tables Table 1. Government Cost of Federal Crop Insurance . . . . . . . . . . . . . . . . . . . . . 2 Appendix A. Major Crop Insurance and Disaster Assistance Provisions in the Enacted 2008 Farm Bill: Comparison with Previous Law and House- and Senate-Passed Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Crop Insurance and Disaster Assistance in the 2008 Farm Bill Agriculture is generally viewed as an inherently risky enterprise. Farm production levels can vary significantly from year to year and by location, primarily because farmers operate at the mercy of nature, and frequently are subjected to weather-related and other natural disasters. Since the Great Depression, policymakers have decided that the federal government should absorb some portion of the weather-related production losses that otherwise would depress farm income and could alter farmers' decisions about what to produce in some high-risk locations. Federal crop insurance is the primary ongoing crop loss assistance program. It is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.), and is administered by the U.S. Department of Agriculture's Risk Management Agency (RMA). This is complemented with the Non-Insured Assistance Program, administered by the Farm Service Agency (FSA), which is available to producers not offered insurance coverage. Lack of insurance availability occurs in locations where there is insufficient production history to determine actuarial risks of a crop or in regions where production of a specific commodity is relatively small. Following a widespread and severe drought in 1988, Congress approved a large ad hoc disaster assistance program to supplement the ongoing disaster programs. Such ad hoc assistance subsequently has became routine. For more information on currently available agricultural disaster assistance, see CRS Report RS21212, Agricultural Disaster Assistance. Since the federal crop insurance program is permanently authorized, it does not require periodic reauthorization in an omnibus farm bill. However, during the 2007- 2008 farm bill debate, some policymakers expressed interest in revising the crop insurance program in the context of the farm bill and/or supplementing it with a permanent disaster payment program. Crop Insurance Background Federal crop insurance policies are marketed and serviced by private insurance companies. In purchasing a policy, a producer growing an insurable crop may select a level of crop yield and price coverage and pay a portion of the premium, which increases as the levels of yield and price coverage rise. The remainder of the premium is covered by the federal government. Coverage is made available through various insurance products, including revenue insurance, which allows a participating producer to insure a target level of farm revenue rather than just production levels. According to the USDA, the federal crop insurance program provided coverage in 2007 to over 100 crops covering more than three-fourths of planted acreage in the country. Although the list of covered commodities has grown in recent years, 80% of total policy premiums (and federal subsidies) are accounted for by just four commodities -- corn, soybeans, wheat, and cotton. CRS-2 Table 1. Government Cost of Federal Crop Insurance (millions of dollars) Federal Private Company Fiscal Program Losses Other Total Premium Admin. Expense Year or (Gains)a Costsb Gov't. Cost Subsidy Reimbursements 1981 97 47 0 105 248 1982 (60) 91 18 110 160 1983 147 64 26 97 334 1984 211 98 76 102 487 1985 216 100 107 98 521 1986 216 90 101 97 504 1987 55 73 107 73 309 1988 609 103 155 78 945 1989 400 190 266 88 945 1990 234 213 272 87 806 1991 247 196 245 84 772 1992 232 197 246 88 764 1993 750 197 250 105 1,303 1994 (127) 247 292 78 489 1995 188 774 373 105 1,440 1996 88 978 490 64 1,621 1997 (373) 945 450 74 1,096 1998 (75) 940 427 82 1,374 1999 (74) 1,295 495 66 1,783 2000 196 1,353 540 86 2,175 2001 725 1,707 648 83 3,163 2002 1,182 1,513 656 114 3,466 2003 822 1,873 743 150 3,589 2004 (303) 2,387 899 142 3,125 2005 (591) 2,368 782 139 2,698 2006 (298) 2,782 960 126 3,571 2007 (1,344) 3,819 1,341 125 3,941 Source: USDA Office of Budget and Program Analysis. Totals may not add due to rounding. a. The difference between total premiums (farmer and government paid) and total indemnity payments for crop losses, plus or minus any private company underwriting losses or gains. b. Other costs primarily include federal salaries of USDA's Risk Management Agency and beginning in 2002, various research and development initiatives mandated by ARPA of 2000 (P.L. 106- 224). CRS-3 Because the program is not subject to periodic reauthorization, major changes to the crop insurance program usually are not addressed in the context of an omnibus farm bill. Over the past 25 years, the program has been subject to three major legislative enhancements (in 1980, 1994, and 2000),1 each of which has pumped additional federal dollars into the program in order to enhance farmer participation levels in anticipation of precluding the demand for ad hoc disaster payments. Since the last major modification in 2000, the federal subsidy to the crop insurance program has averaged about $3.25 billion per year, up from an annual average of $1.1 billion in the 1990s and about $500 million in the 1980s. Nearly two-thirds of the current federal spending is used to subsidize insurance policy premiums, and the balance primarily covers the government share of program losses and reimburses participating private insurance companies for their administrative and operating expenses (see Table 1). Although the scope of the program has widened significantly over the past 25 years, the anticipated goal of crop insurance replacing disaster payments has not been achieved. In virtually every crop year since 1988, Congress has provided ad hoc disaster payments to farmers with significant weather-related crop losses. These have been made available primarily through emergency supplemental appropriations, and, until recently, regardless of whether a producer had an active crop insurance policy. The exception to the historical pattern is the FY2007 supplemental appropriations act (P.L. 110-28, as amended by the FY2008 Consolidated Appropriations Act), which is expected to provide an estimated $2.4 billion in crop disaster payments for 2005, 2006, or 2007 crop losses, but only to those producers who held an active crop insurance policy or enrolled in the noninsured assistance program in the year of the crop loss.2 Since FY1989, total disaster payments have amounted to more than $20 billion, or just over $1 billion per year. Over the past six years (FY2001-FY2006), the federal cost of the crop insurance program combined with ad hoc supplemental disaster payments has averaged $4.5 billion per year (see Figure 1). For a summary of all agricultural disaster assistance provided by Congress since 1988, see CRS Report RL31095, Emergency Funding for Agriculture: A Brief History of Supplemental Appropriations, FY1989-FY2007. 1 Federal Crop Insurance Act of 1980 (P.L. 96-365), Federal Crop Insurance Reform Act of 1994 (P.L. 103-354), Agriculture Risk Protection Act (ARPA) of 2000 (P.L. 106-224). For information on ARPA of 2000, see CRS Report RL30739, Federal Crop Insurance and the Agriculture Risk Protection Act of 2000 (P.L. 106-224). 2 This assistance was provided in Title IX, Section 9001 of the FY2007 Iraq War Supplemental Act (P.L. 110-28). The projected spending of $1.5 billion for 2005, 2006 and early 2007 crop losses will be made in FY2008. For a description of this and other types of agricultural assistance made available in P.L. 110-28, see CRS Report RS21212, Agricultural Disaster Assistance. CRS-4 Figure 1. Crop Insurance and Disaster Payments: Total Federal Cost, by Fiscal Year 6000 5000 4000 Million $ 3000 2000 1000 0 8 0 2 4 6 8 0 2 4 6 '8 '9 '9 '9 '9 '9 '0 '0 '0 '0 Crop Insurance Crop Disaster Payments Source: Primary data are from USDA's Table 35, CCC Net Outlays by Commodity & Function for disaster payments, and USDA's Office of Budget & Program Analysis for crop insurance. Crop Insurance And Disaster Provisions in the 2008 Farm Bill The following sections review the major crop insurance and disaster assistance provisions of the enacted 2008 farm bill (P.L. 110-246) and the major issues that shaped the debate. See Appendix A, below, for a comparison of the crop insurance and disaster assistance provisions in the enacted 2008 farm bill, with the House- and Senate-passed versions of the farm bill and previous law. Reducing Crop Insurance Program Costs Because of the rising cost of the crop insurance program, many policymakers viewed the program as a potential target for spending reductions, whereby savings could be used to fund new initiatives in various other titles of the farm bill. Consequently, Title XII of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill) contains several revisions to the crop insurance program, most of which are designed to reduce program costs. For all crop insurance provisions in Title XII, the Congressional Budget Office (CBO) estimates net budget outlay savings of $3.9 billion over 5 years (FY2008-FY2012), or $5.6 billion over 10 years (FY2008-FY2017), relative to the March 2007 baseline which was the official budget scoring benchmark for the bill. CRS-5 Timing of Crop Insurance Payments. Approximately $2.8 billion of this estimated five-year savings is attributable to changes in the timing of premium receipts from farmers, and payments to the participating insurance companies. None of these revisions would directly affect the final monetary amounts for participating farmers or insurers, but would still be scored as savings within the five-year horizon of the bill. Essentially, these 2008 farm bill provisions will allow USDA to collect two crop years of premiums in 2012, and delay the 2012 payment of reimbursements and underwriting gains into the next fiscal year. Insurance Company Reimbursements and Loss Sharing. Although crop insurance is sold and serviced by private insurance companies, the federal government absorbs a large portion of program losses and reimburses the companies for their administrative and operating (A&O) expenses. Loss sharing and A&O reimbursements currently are spelled out in a Standard Reinsurance Agreement (SRA) between USDA and the private companies.3 Under the SRA, the reimbursement rate for A&O expenses currently averages 22% to 24% of total premiums. The 2008 farm bill reduces the A&O reimbursement rate by 2.3 percentage points beginning with the 2009 reinsurance year (July 1, 2008). This reduction can be restored in any state that experiences a loss ratio of 1.2 or greater (i.e., when total indemnity payments to farmers are more than 20% greater than total premiums). The farm bill also reduces the A&O reimbursement rate to 12% for any plan of insurance that is based on area-wide losses. CBO estimates that these provisions will save $618 million over five years. A House provision to require the insurance companies to share more of their underwriting gains with the federal government was not included in the final version of the bill. The conferees did adopt a provision that allows USDA to renegotiate the SRA once every five years beginning with the 2010-2011 reinsurance year. During the farm bill debate, the Administration and others contended that the private insurance companies should be required to absorb more of the program losses, and that the reimbursement rate for company A&O expenses needed to be reduced as a means of reducing federal costs. Proponents for change point out that A&O reimbursements to the companies have doubled over the last seven years (see Table 1), mainly because farmers have been buying up to higher levels of insurance coverage, causing total premiums to rise. Since A&O reimbursements are based on a percentage of total premiums (and premiums have been rising significantly in tandem with crop prices), the Administration contends that the companies are being overcompensated for their expenses. The private crop insurance companies contend that any reductions in the A&O reimbursement will negatively impact the financial health of the crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in high-risk areas. Farmer Subsidy and Costs. Under the crop insurance program, farmers pay no premium for CAT coverage (which is 100% subsidized by the government), and are encouraged to purchase higher levels of coverage. On average, about 50% 3 For more background and for the text of the SRA, see [http://www.rma.usda.gov/pubs/ra/]. CRS-6 of the premium is subsidized by the government for this buy-up coverage. For farmers whose crops are not covered by crop insurance, they are offered the equivalent of CAT coverage under a separate Noninsured Assistance Program (NAP), and pay an administrative fee for this coverage. A number of provisions are included in the 2008 farm bill that require participating farmers to share more in program costs, including (1) an increase in the fee paid by farmers for both catastrophic (CAT) coverage and NAP to $300 per crop per county, from the previous $100 fee; and (2) a 4 percentage point reduction in the rate of premium subsidy received by farmers for policies based on area-wide losses. The 2008 farm bill also requires USDA to operate the crop insurance program so that the anticipated loss ratio is 1.0 (i.e., total indemnity payments equal to total premiums), compared with the then-current statutory loss ratio requirement of 1.075. To achieve the new lower ratio could mean somewhat higher premiums for farmers. Waste, Fraud, and Abuse For many years, policymakers have been concerned about waste, fraud, and abuse within the federal crop insurance program. The Agricultural Risk Protection Act (ARPA) of 2000 (P.L. 106-224) contained several provisions designed to enhance USDA's recognition of and response to challenges to program compliance and integrity. In response to the ARPA requirements, USDA used "data mining" techniques to compile an annual list of producers who either exhibit high loss ratios (i.e., high indemnity payments relative to total premiums), exhibit high frequency and severity of losses, or are suspected of poor farming practices that might contribute to production losses. USDA estimates that the use of the spot-check list has prevented between $70 million and $110 million each year in improper payments. Mandatory funding authorized by ARPA for data mining and other ARPA-related program integrity activities expired at the end of FY2005. A general provision in the FY2008 Consolidated Appropriations Act (P.L. 110-161) allows USDA to use up to $11.166 billion in mandatory funds in FY2008 to strengthen its ability to reduce waste, fraud, and abuse within the crop insurance program. However, future funding for this activity was uncertain. The 2008 farm bill authorizes up to $4 million annually for data mining activities beginning in FY2009, and authorizes $15 million annually for four years (FY2009-FY2013) to upgrade USDA's computer technology for crop insurance. Agricultural Disaster Assistance During the 2007-2008 farm bill debate, some policymakers wanted to make permanent in the farm bill some level of disaster payments to supplement the crop insurance program. Supporters say that ongoing farm disaster programs do not adequately address emergency needs when a major disaster strikes and that USDA should have at its disposal a permanent source of disaster funds in the same manner as the Federal Emergency Management Administration (FEMA). Questions in the debate included how such a program would be funded given current budget constraints, and whether the permanent availability of disaster payments would adversely affect participation in the crop insurance program, and possibly encourage production on high-risk lands. CRS-7 Supplemental Crop Revenue Assistance Program. Title XV of the 2008 farm bill authorizes a series of new disaster programs through September 30, 2011, the largest of which is a supplemental revenue assistance payment program for crop producers. The program is designed to compensate eligible producers for a portion of crop losses that are not eligible for an indemnity payment under the crop insurance program (i.e., the portion of losses that is part of the deductible on the policy.) An eligible producer can receive a payment equal to 60% of the difference between a target level of revenue and the actual total farm revenue for the entire farm. The target level of revenue would be based on the level of crop insurance coverage selected by the farmer, thus increasing if a farmer opts for higher levels of coverage. (See the box in this report for a description of how the guarantee level and total farm revenue are defined by the statute.) To be eligible for a payment, a producer must be either in or contiguous to a county that has been declared a disaster area by either the President or the Secretary of Agriculture. Payments are limited so that the disaster program guarantee level cannot exceed 90% of what income likely would have been in the absence of a natural disaster. The producer also must have at least the minimum level of crop insurance (CAT) coverage for insurable crops and participate in the NAP program for non- insurable crops. The statute makes an exception for the 2008 crop year by allowing producers who did not purchase crop insurance or NAP coverage in advance to be eligible for the program, as long as they pay the equivalent administrative fee for coverage within 90 days of enactment. Other Authorized Disaster Programs. In addition to the supplemental crop revenue assistance payment program described above, the 2008 farm bill also authorizes and funds four smaller disaster programs: (1) Livestock Indemnity Payments, which compensate ranchers at a rate of 75% of market value for livestock mortality caused by a disaster; (2) Livestock Forage Disaster Program, to assist ranchers who graze livestock on drought-affected pastureland or grazing land; (3) Emergency Assistance for Livestock, Honey Bess and Farm Raised Fish, which will provide up to $50 million to compensate these producers for disaster losses not covered under other disaster programs; and (4) Tree Assistance Program, for orchardists and nursery growers who can receive a payment to cover 70% of the cost of replanting trees or nursery stock following a disaster (up to $100,000 per year per producer). Disaster Program Funding. All five of these farm bill disaster programs will receive funding through a newly authorized Agricultural Disaster Relief Trust Fund within the U.S. Treasury. The Trust Fund will receive the equivalent of 3.08% of the amount received each year (FY2008-2011) in U.S. Customs receipts collected on certain goods. The Congressional Budget Office (CBO) estimates the combined total costs to be $3.8 billion over the four-year life of the programs, relative to the March 2007 budget baseline. Of this total, CBO estimates that supplemental crop revenue assistance will cost $1.7 billion over the four years, or an average of $425 million per year. Another $1.6 billion would cover increased crop insurance and NAP costs associated with the crop insurance and NAP purchase requirement. The balance of $500 million would cover the combined estimated cost of the other four disaster programs. If the cost of the programs exceeds the level of funding provided through Customs receipts, the 2008 farm bill gives the Trust Fund the authority to borrow from the Treasury such sums as necessary to meet its obligations. CRS-8 Supplemental Agricultural Disaster Assistance Payment Mechanism in the 2008 Farm Bill Title XV of the 2008 farm bill (P.L. 110-246) authorizes a new crop disaster program for FY2008- FY2011. Eligible farmers must be in or contiguous to a disaster declared county, or have a 50% crop loss. They must have purchased crop insurance or Noninsured Assistance Program (NAP), where applicable. I. Payment Formula Eligible crop producers can receive a supplemental payment equal to: 60% of (Disaster Assistance Program Guarantee (DAPG) minus Total Farm Revenue (TFR) ) Formula is based on the revenue of the entire farm. DAPG cannot exceed 90% of Expected Revenue II. How to Calculate the Disaster Assistance Program Guarantee (DAPG): A. Insurable Crops DAPG = 115% of (Payment Rate X Payment Acres X Payment Yield) Payment Rate = Crop Insurance Price Election Payment Acres = Planted and Prevented Planting Acreage Payment Yield = Selected Crop Insurance Coverage Level X Crop Insurance Yield Hypothetical Corn Example: Price Election = $4.75; Planted Acres = 500; Coverage Level = 70%; Yield = 150 bushels per acre DAPG = 1.15 ($4.75 X 500 Acres X (.7(150 bushels per acre))) = $286,781.25 B. Non-insurable Crops 120% of (Payment Rate X Payment Acres X Payment Yield) Payment Rate = 100% of the Noninsured Assistance Program (NAP) Price Payment Acres = Planted and Prevented Planting Acreage Payment Yield = Adjusted NAP yield or Counter-Cyclical Payment (CCP) yield, whichever is higher III. How to Calculate Total Farm Revenue (TFR) : TFR = Estimated Actual Value for each crop produced on the farm = Value of Actual Crop Production + 15% of Direct Payments + CCP or Average Crop Revenue (ACRE) Payments + Loan Deficiency Payments (LDP) or Marketing Loan Gains (MLG) + Crop Insurance Indemnities + NAP Payments + Other Disaster Payments Where the Value of Actual Crop Production = Actual Harvested Acreage X Estimated Actual Yield x Natl. Avg. Market Price For NAP eligible crops, the National Average Market Price cannot be greater than 100% of NAP Price. IV. How to Calculate Expected Revenue DAPG cannot exceed 90% of Expected Revenue. Expected Revenue = (Adjusted APH or CCP Yield X Planted and Prevented Acreage X Price Guarantee) + (Adjusted NAP Yield X Adjusted NAP Price) CRS-9 Appendix A. Major Crop Insurance and Disaster Assistance Provisions in the Enacted 2008 Farm Bill: Comparison with Previous Law and House- and Senate-Passed Bills SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) TITLE XII: CROP INSURANCE Timing of Crop Insurance Payments and Receipts The federal government provides three Changes the timing of crop insurance Similar, but not identical, language as the Adopts the House provision that changes levels of subsidies to the crop insurance receipts (premium collections) and the House bill, which effectively requires the premium billing date to August 15 program: (1) subsidizing a portion of the timing of payments to the insurance premiums to be collected from producers [Sec. 12007], the Senate provisions that farmer-paid premium, (2) reimbursing companies, beginning with the 2012 slightly earlier, and payments to the change the timing of reimbursements to the private crop insurance companies for reinsurance year (which starts July 1, insurance companies to be made slightly the private companies for operating most administrative and operating 2011). Two insurance years of program later, beginning in the 2012 crop year, so expenses to between October 1 and 31 expenses, and (3) absorbing most of the receipts will be received in the same that savings can be scored in the last year [Sec. 12015] and underwriting gains to program losses. [7 USC 1501 et seq.] fiscal year (FY2012) and payments will of the 5-year farm bill (FY2012). [Secs. October 1 [Sec. 12018], thus allowing the be delayed until the next fiscal year, thus 1906 and 1914] scoring of budget savings in FY2012. scoring budget savings in FY2012. [Secs. 11001(c), 11001(e), and 11010] Reimbursement of Administrative and Operating Expenses Current law prohibits companies from Beginning in the 2009 reinsurance year, Beginning in the 2009 reinsurance year, Beginning in the 2009 reinsurance year, receiving a reimbursement greater than the reimbursement rate to the insurance the reimbursement rate for additional the reimbursement rate for additional 24.5% of total premiums. The current companies for their administrative and coverage policies falls by 2 percentage coverage policies falls by 2.3 percentage Standard Reinsurance Agreement (SRA) operating expenses for all policies points. An exception is any reinsurance points. Restores one-half of the establishes the reimbursement rate below declines by 2.9 percentage points from year in any state that has a loss ratio reduction in states with a loss ratio the statutory maximum for all insurance the current rate. The range of greater than 1.2 (i.e., when indemnity greater than 1.2. [Sec. 12016] The plans, ranging from 18.1% to 24.2%. [7 reimbursement rates declines to between payments exceed total premiums by more reimbursement rate for policies based on USC 1508(k)(4)(A)] 15.2% to a maximum of 21.3%. [Sec. than 20%.) The reimbursement rate for area-wide losses is reduced to 12% of 11001(d)(1)] policies based on area-wide losses is total premiums. [Sec. 12012] reduced to 17% of total premiums. [Sec. 1912] Premiums and Fees For catastrophic (CAT) coverage, Increases the producer-paid fee for Similar to the House bill for raising the Raises the CAT fee to $300 per crop per producers pay no premium, but pay an catastrophic coverage to $200 per crop CAT fee to $200. The NAP fee is county. [Sec.12006] Increases the NAP administrative fee of $100 per crop per per county. For NAP, the fee also is increased to $200 per crop per county, or fee to $250 per crop per county, or $750 county. [7 USC 1508(b)(5)(A)] Growers raised to $200 per crop per county, or $600 per producer per county, not to per producer per county, not to exceed of uninsurable crops are eligible for a $600 per producer per county, not to exceed $1,500 per producer. [Secs. 1905 $1,875 per producer. [Sec. 12028] separate Noninsured Assistance Program exceed $1800 per producer. [Secs. 11002 and 1926] (NAP) and pay a fee of $100 per crop, or and 11009] CRS-10 SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) $300 per producer per county, not to exceed $900 per producer. [7 USC 7333(k)(1)] When permitted by state law, a Limits the ability of associations to pay Revises current law to clarify that the Adopts the provision in Sec. 1905 of the cooperative or trade association may pay the CAT fee on behalf of a producer. provision applies only to fees for CAT Senate bill which clarifies that on behalf of its members, any or all of [Sec. 11001(b)] Prohibits insurance coverage. [Sec. 1905] cooperatives and trade associations can the administrative fee for CAT coverage. companies from paying or rebating pay only the fees for catastrophic [7 USC 1508(b)(5)(B)] . premiums, or making any inducements to coverage on behalf of their members. purchase crop insurance. [Sec. 11001(a)] [Sec. 12006] Also adopts the provision in Sec. 11001(a) of the House bill that prohibits the rebating of premiums, with certain exceptions for entities that have already been approved for rebating. [Sec. 12004] Authorizes crop insurance companies to Strikes authority for companies to offer a Strikes authority for PRP only, and Strikes authority for the PRP only. [Sec. offer customers a discount when the Premium Reduction Plan (PRP) or requires USDA to commission a study on 12010] insurance companies adopt efficiencies Premium Rate Reduction Pilot program. the feasibility of the PRP within 18 that reduce their administrative and [Sec. 1101(f)] months of enactment. [Sec. 1908] operating costs. [7USC 1508(b)(5)(A)] No comparable provision. Reduces the premium subsidy for area No comparable provision. Adopts the House provision. [Sec. risk plans by 4 percentage points. [Sec. 12012] 11013] Requires USDA to set premiums so that No comparable provision Reduces the statutory loss ratio to 1.0, Adopts the Senate provision. [Sec. the overall program loss ratio is 1.075. meaning that total premiums should be 12003] [7 USC 1506(n)] established to equal expected total indemnity payments. [Sec. 1903] Authorizes an Agricultural Management No comparable provision Allows USDA to use AMA funds to No comparable provision. Assistance (AMA) program to in part match state funds used to provide help certain states make better use of risk additional premium discounts to management tools. [7 USC 1524(b)] underserved states. [Sec. 1923] CRS-11 SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) Standard Reinsurance Agreement and Risk-Sharing The current Standard Reinsurance Requires the private insurance companies No comparable provision. No comparable provision. Agreement (SRA) between the federal to reinsure at least 22% of their retained government and private crop insurance premiums with the government, and in companies determines levels of risk return the government will provide a sharing. The current agreement requires ceding commission of 2% to companies, companies to reinsure 5% of their allowing the government to receive some retained premium with the government. underwriting gains that would otherwise accrue to the companies. [Sec. 11014] No comparable provision. USDA can renegotiate the SRA starting Similar to the House bill, except that Allows USDA to renegotiate the SRA with the 2012-13 reinsurance year, and USDA has discretion to renegotiate the beginning with the 2010-11 reinsurance once every 5 years thereafter. Insurance SRA more frequently than every 5 years, year and once every 5 years thereafter. companies can confer with each other with congressional notification of such Adopts the Senate provision to allow during the process. [Sec. 11001(d)(2)] action. Allows crop insurance companies companies to confer with each other and to confer with each other and collectively collectively with USDA during with USDA during the renegotiation renegotiation. SRA can be renegotiated process. [Sec. 1913] more than once in a 5-year period if one of the changes is required by law, and Congress is notified. [Sec. 12017] Program Integrity (Waste, Fraud, and Abuse) Annual mandatory funds of $23 million Authorizes mandatory funding of $11 Requires USDA to establish a program Provides mandatory funding of up to $4 for data mining and program integrity million in FY2008, and $7 million in whereby crop insurance companies pay million per year beginning in FY2009 for activities expired at the end of FY2005. FY2009 and subsequent years for crop USDA a fee for access to its data mining data mining, and requires periodic [7 USC 1516(k)] Annual appropriations insurance program compliance and system, and USDA uses proceeds for its competition for the funds. Also, adds a acts provided $3.6 million in annual integrity activities, including data data system. [Sec. 1915] Prohibits new subsection to provide mandatory discretionary funds (FY2006, FY2007). mining. [Sec. 11008] farmers from collecting commissions as funds of up to $15 million per year over FY2008 appropriations act authorized agents on policies in which their family 4 years (FY2009-13) to upgrade USDA's mandatory funds of $11.2 million. has a substantial interest. [Sec. 1904] computer technology for crop insurance. [Sec. 12021] Adopts the Senate provision that prohibits farmers from collecting commissions as agents on policies in which their family has an interest, with modifications to the definitions of "family" and "compensation." [Sec. 12005] CRS-12 SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) Risk Management Research and Development USDA is required to reimburse an Authorizes USDA to use no more than Reduces annual mandatory funding for Adopts the Senate provision to reduce applicant for the R&D costs associated $30 million annually in mandatory funds R&D from $15 million to $7.5 million, mandatory funding for R&D from $15 with developing a new plan of crop for grants for R&D and education and and for contracting and partnerships from million to $7.5 million and for insurance that is approved by USDA [7 information programs, of which $5 $25 million to $12.5 million. Prohibits a contracting and partnerships from $25 USC 1522] and with developing crop million is for underserved states. surcharge on premiums for organic crops, million to $12.5 million. [Sec. 12024] insurance education programs. [7 USC Stipulates criteria for which grants will unless greater loss history is confirmed. Applicants with approved concept papers 1524] Current annual mandatory funding be awarded. Requires USDA to enter into Establishes an alternative reimbursement for a new policy can receive up to 50% is $15 million for R&D reimbursements contracts to improve coverage for grant process. Requires USDA to enter of expenses in advance, and the balance and $25 million for contracting and organic crops, and to address the needs of into contracts to expand coverage for upon approval. [Sec. 12022] Adopts the partnerships. [7 USC 1522(e)] beginning and minority farmers. [Secs. organic crops, aquaculture, energy crops House provision to enter into contracts to 11003-11006] such as switchgrass, and to address the improve coverage for organic crops, and needs of beginning and minority farmers. Senate provisions for energy crops and [Secs. 1917-1919, 1907] aquaculture, and other new provisions for poultry, beekeepers, and beginning farmers. [Sec. 12023] Requires USDA to emphasize the development of risk management education programs for beginning, immigrant, socially disadvantaged, retiring, and transitioning farmers. [Sec. 12026] Other Crop Insurance Provisions No comparable provision. Establishes a National Drought Council No comparable provision. No comparable provision. within USDA and national drought preparedness plans, including a Drought Assistance Fund to provide technical and financial assistance to states for mitigating drought risk. [Sec. 11012] Ad-hoc emergency disaster payments are Prohibits USDA from using production Similar to the House bill. Also requires Adopts the Senate provision. [Sec. available to producers who experienced data from the sweet potato crop insurance USDA to extend the disaster application 12029] significant losses to a 2005, 2006, or pilot program in determining crop deadline for sweet potato growers, if 2007 crop. (Sec. 9001 of P.L. 110-28, as disaster payments for 2005 and 2006. necessary, to implement this provision. amended by P.L. 110-161). [Sec. 11016] [Sec. 1927] CRS-13 SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) Authorizes USDA to create crop Mandates a sesame insurance pilot Creates pilot programs for sesame [Sec. Authorizes separate insurance pilot insurance pilot programs. [7 USC 1523] program for Texas. [Sec. 11011] 1921], camelina [Sec. 1920], and programs, for sesame, camelina, grass enterprise/whole farm units [Sec. 1909]. seed [Sec. 12025] and for enterprise and whole farm units (with some modifications to the Senate provision) [Sec. 12011] No comparable provision. Non-cropland (including native grassland Makes native sods planted to an insurable Makes native sods planted to an insurable and pastureland) planted to an insurable crop (over 5 acres) ineligible for crop crop (over 5 acres) ineligible for crop crop ineligible for crop insurance for the insurance and the noninsured crop insurance and the noninsured crop first 4 years of planting. [Sec. 11007] disaster assistance program. Directs disaster assistance program for the first 5 USDA to report within 180 days of years of planting. May apply to virgin enactment, and annually thereafter, on prairie converted to cropland in the changes in cropland acreage, by county, Prairie Pothole National Priority Area, if since 1995. [Sec. 2608] elected by the state. [Sec. 12020] No comparable provision. No comparable provision. Makes contract livestock producers No provision addressing the eligibility of eligible for crop insurance, if not covered contract livestock producers. by other policies. [Sec. 1916] Requires a Adopts the requirement that USDA USDA report within 180 days of report on declining yield issues. [Sec. enactment on issues regarding declining 12030] crop insurance yields, especially for perennials. [Sec. 1928] No comparable provision. No comparable provision. An organic crop is defined as any Adopts the Senate provision. [Sec. agricultural commodity that is 12001] organically produced consistent with section 2103 of the Organic Foods Production Act of 1990 (7 U.S.C. 6502). [Sec. 1901] Title XV: Supplemental Agriculture Disaster Assistance Congress periodically provides ad-hoc No comparable provision. Authorizes a permanent agricultural Adopts a variation of the Senate emergency disaster payments to crop and disaster trust fund that will fund a series provision. For FY2008-11, five new livestock growers to supplement income of disaster programs that provide disaster programs are authorized and following a natural disaster. Most payments to crop and livestock growers funded through a transfer of 3.08% of recently, Congress provided emergency who experience significant production annual customs receipts. The five new supplemental assistance for 2005, 2006, losses in a USDA-declared disaster area. programs are: 1) Supplemental Revenue or 2007 production losses. [Sec. 9001 of For FY2008-12, the program is funded Assistance Payments (for crops); 2) P.L. 110-28, as amended by P.L. through a transfer of 3.34% of annual Livestock Indemnity Payments; 3) 110-161]. customs receipts from the U.S. Treasury. Livestock Forage Disaster Program; 4) CRS-14 SENATE-PASSED SUBSTITUTE ENACTED 2008 FARM BILL CURRENT LAW/POLICY HOUSE-PASSED FARM BILL (H.R. 2419) AMENDMENT (H.R. 2419) (P.L.110-246) Payments are made under four new Emergency Assistance for Livestock, programs: 1) Supplemental Revenue Honeybees, and Farm-Raised Catfish; Assistance Payments (for crops); 2) and 5) Tree Assistance Program. [Sec. Livestock Indemnity Payments; 3) 15101] Emergency Assistance for Livestock, Honeybees, and Farm-Raised Catfish; and; 4) Tree Assistance Program. [Sec. 12101] ------------------------------------------------------------------------------ For other versions of this document, see http://wikileaks.org/wiki/CRS-RL34207