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[Agriculture Fact Book 98]
The mission of the Risk Management Agency (RMA) is to provide and support cost-effective means of managing risk for agricultural producers in order to improve the economic stability of agriculture. Crop insurance is USDA’s primary means of assisting farmers following a crop loss. For example, in 1997, nearly $24 billion in protection was provided on over 165 million acres through more than 1.1 million policies. Crop insurance helps farmers recover from crop losses, secure operating loans, and market a portion of their crop aggressively.
In 1997, an estimated 70 percent of acreage planted to major crops was insured. Crop insurance coverage is widely available on all major commodities, such as corn, wheat, and cotton. Coverage is also available on a growing number of fruits, nuts, and vegetable crops. Nationally, 80 crops are insurable, though not everywhere they are grown.
To help ensure greater farmer access to this valuable risk management tool, the Federal Crop Insurance Corporation (FCIC) Board of Directors expanded 28 crop programs into an additional 187 counties for the 1999 crop year. This expansion added to the national total of 28,154 county crop programs in 2,983 counties. Further, RMA continues to develop new pilot programs, such as insurance for cabbage, watermelons, and rangeland. By increasing the number and types of insurance plans, the program will help producers to better manage their production risks.
Multiple-Peril Crop Insurance (MPCI) policies insure producers against losses due to unavoidable causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. Indemnities are paid on the difference between what was produced and the “yield guarantee” selected by the producer. Yield guarantees are selected by the producer and represent 50, 55, 60, 65 70, 75, and--for some areas and crops--85 percent of a producer’s actual production history. The prices used to pay losses are between 60 and 100 percent of the commodity price established annually by RMA.
The Group Risk Plan (GRP) policies use a county index as the basis for determining a loss. When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the “trigger level” chosen by the farmer, an indemnity is paid. Yield levels are available for up to 90 percent of the expected county yield. GRP protection involves less paperwork and costs less than the farm-level coverage described above. However, individual crop losses may not be covered if the county yield does not suffer a similar level of loss.
Revenue Insurance Plans include three plans: Crop Revenue Coverage, Income Protection, and Revenue Assistance. Revenue policies are different from standard MPCI policies in that they provide farmers with a measure of price risk protection in addition to covering yield loss. Two of the policies, Crop Revenue Coverage and Revenue Assurance, were developed by private-sector insurance companies. The Income Protection pilot was developed by RMA. Essentially, these policies guarantee a level of revenue that is determined differently by each of the policies. Indemnities are paid when any combination of yields and prices results in revenue that is less than the revenue guarantee.
RMA launched an innovative cost-share initiative--the Dairy Options Pilot Program (DOPP)--to help producers create their own financial safety net by purchasing exchange-traded options on the price of their milk. When milk prices fall, producers offset losses based on projected future earnings--in effect, putting a floor under their milk prices.
“The new dairy options pilot program is only one step we are taking to help dairy farmers survive under current farm laws. We think it offers promise to help farmers manage the risk they may face from increased price volatility.”
--Dan Glickman
During each 6- to 8-month round of DOPP, producers in the seven selected pilot States receive training and hands-on experience in trading their options on either the New York Board of Trade or the Chicago Mercantile Exchange. USDA pays up to 80 percent of the options premium costs and a $30 fee for transactions executed under program guidelines.
RMA has intensified its efforts to reach beginning, minority, and limited-resource farmers. Some highlights of these efforts include:
Recent changes to farm policy have increased the risk borne by individual producers. To help them acquire the risk management skills needed to compete and win in the global marketplace, RMA funded over $3 million in educational grants to help farmers and ranchers become active risk managers. The grants support public- and private-sector partnerships working to find improved risk management strategies, develop educational curricula and materials, and train producers and their advisors. The initiative is a cooperative effort by RMA; the Cooperative State Research, Education, and Extension Service; the Commodity Futures Trading Commission; and numerous private-sector agricultural organizations.
“This initiative is vitally important, because producers who do the best job of managing risk will be better prepared to compete in the post-Farm Bill market environment.”
--Dan Glickman
Increasingly, other countries are examining the crop insurance program as an alternative to farm subsidies. RMA regularly meets with representatives from foreign governments and private organizations to explain the U.S. program. This vital outreach, which is primarily educational, is expected to grow in the future.
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