Background of the Federal Crop Insurance Program (FCIP):
In 1938, Congress created the Federal Crop Insurance Corporation (FCIC) in order to address agricultural challenges caused by the Great Depression and the Dust Bowl. The Federal Crop Insurance Act was passed the same year, which established the first Federal Crop Insurance Program (FCIP). Moreover, the initial FCIP only covered wheat, cotton, flax, corn and tobacco for a total of 391 country-crop programs (National Crop Insurance Services, n.d.). This program was expensive and widely considered impractical by farmers and ranchers for over 40 years.
The Federal Crop Insurance Act of 1980 was later revised and re-implemented with the intention of increasing affordability and accessibility for farmers. This act introduced a new partnership between the U.S. government and private insurance companies, which coupled together efficiencies of the private sector’s delivery system and the federal government’s financial support in an effort to protect farmers against natural disasters and unforeseen market declines. Moreover, the 1980 Act expanded the FCIP by increasing the number of covered agricultural commodities in the United States.
The Federal Crop Insurance Reform Act of 1994 required mandatory participation of farmers in the crop insurance program in order to be eligible for deficiency payments, credit loans, and other benefits. However, Congress nullified mandatory participation for all of its participants in 1996. Farmers who previously accepted benefits from these crop insurance programs could select between purchasing crop insurance or waiving their eligibility for disaster benefits the following crop year.
Following the 1994 act, participation rates in the crop insurance program amongst farmers increased when the government subsidized insurance premiums in the FCIP. The Risk Management Agency (RMA) was established in 1996 in order to “administer FCIP programs and other non-insurance-related risk management and education programs that help support US agriculture” (USDA, n.d.). In 1998, the USDA National Agricultural Statistics Service estimated that over 66 % of all planted field crops in the United States were insured under FCIP.
In 2000, Congress enacted the Agricultural Risk Protection Act (ARPA), which enhanced the role of the private sector in the FCIP. Private insurance companies were authorized to engage in the research and development of insurance products and features. As a result, private insurance companies would generate contracts and propose new insurance products to the RMA’s Board of Directors. If approved, private insurance companies could receive reimbursement for their research, development, and costs of unsolicited insurance products. After three years of the Board’s acceptance, private entities may elect to charge a fee to other insurance providers that sell the insurance product or transfer product ownership to the RMA.
The 2014 Farm Bill (Section 298) was essential to the growth of FCIP, which highlighted risk management as a tool for dealing with agricultural production and price risk. This bill also introduced two policies that further advanced the safety net for American farmers: the Stacked Income Protection Plan (STAX) and the Supplemental Coverage Option (SCO).
STAX is an insurance package that “provides coverage for a portion of the expected revenue for an area that upland cotton is produced in” (American Farm Bureau Insurance Services, n.d.). In addition, SCO was established to provide protection to underlying crop insurance policy deductibles and must be purchased as an endorsement to already existing crop insurance policies. (USDA Risk Management Agency, n.d.) The federal government has expended about 80% to STAX and 65% to SCO. Furthermore, the 2018 Farm Bill expanded insurance policies to cover additional non-traditional agricultural commodities, including those from aqua-culture and hemp production (Crop Insurance America, 2018).
Current Status (Multiple Peril Crop Insurance, Crop-Hail Insurance, and Crop Revenue Insurance Programs):
Federal crop insurance is available to all farmers and covers over 100 commodities and 127,000 county-crop programs (National Crop Insurance Services, n.d.). In the United States, there are three major crop insurance programs: Multiple Peril Crop Insurance (MPCI), Crop-Hail Insurance (CHI), and Crop Revenue Insurance (CRI).
Multiple Peril Crop Insurance (MPCI)
MPCI is the most common crop insurance program for farmers to purchase. The goal of this program is to cover crop losses (including lower yields) due to natural events such as destructive weather (such as hail, frost, wind), disease, drought, fire, flooring, and invasive insect damage. (Insurance Information Institute, n.d.). Although the program is federally regulated, private crop insurance companies and agencies will sell these policies to farmers. 90% of farmers with crop insurance purchase MPCI, and there are over 120 crops that are accessible through the program.
Crop-Hail Insurance (CHI)
In areas of the country where hail is quite frequent, farmers purchase CHI in return for financial protection from the potential threat and destruction that hail may pose to agricultural acreage in production. Although CHI is considered a major crop insurance program in the United States, it is not a part of the FCIP. Instead, the development and regulation of CHI is controlled by state municipalities and also sold by private insurance companies to farmers. In addition, this program is available for purchase at any point during the growing season. CHI is often purchased as supplementary coverage to MPCI, because CHI may offer “a smaller deductible to cover spot losses” (TCI Insurance, n.d.). Due to this limitation, agricultural producers are more likely to choose MPCI in comparison to CHI.
Crop Revenue Insurance (CRI)
CRI is beneficial to the protection of farmers’ income during seasons when crops would have smaller yields. Ultimately, CRI provides assistance to farmers when unexpected market pressures lead to sharp declines in crop prices. Through this program, insurance companies pay agricultural producers a specific amount based on the previous two years of annual earnings. The 2014 Farm Bill was also valuable to the growth of the program, because it included new covered products and commodities. Moreover, multiple adjustments were made to CRI in order to make crop insurance an essential element to the farm safety net.
Conclusion:
The Federal Crop Insurance Program (FCIP) is a cornerstone for U.S. agricultural policy, as it is a safety net for American farmers and ranchers. Major crop insurance programs in the United States include the Multiple Peril Crop Insurance (MPCI), Crop-Hail Insurance (CHI), and Crop Revenue Insurance (CRI) - which are responsible for protecting farmers against the negative effects of natural disasters and unexpected declines in farm revenue.
The development of the 2014 and 2018 U.S. Farm Bill was significant to the growth of the FCIP. The 2014 Farm Bill supported research for improving agricultural production and evaluating market risks for agricultural producers, which resulted in the establishment of the Stacked Income Protection Plan (STAX) and the Supplemental Coverage Option (SCO). Moreover, the 2018 Farm Bill further enhanced major crop insurance programs in the United States agricultural sector by offering additional risk-management selections, increasing affordability and accessibility for veteran farmers, and enlarging the farm safety for specialty crop farmers.
A history of federal crop insurance policies reveals a shift from an emphasis on disaster-relief coverage to risk-management through the RMA as a contemporary strategy for protecting farmer’s income for lost crops. While federal insurance policies were recently expanded under the 2014 and 2018 U.S. Farm Bills, it remains unclear how contemporary insurance policies will be able to effectively address the negative impacts of climate change (which include more frequent natural disasters that can de-stabilize agricultural growing conditions). More research is needed to investigate the relationship between methods of agricultural production, environmental stressors, and the impact of insurance policies on farmers moving forward in order to critically address this challenge.
Works Cited/Reference List:
American Farm Bureau Insurance Services. (n.d.). STAX. Retrieved from November 25, 2019, from: https://www.farmbureausellscropinsurance.com/insurance-plans/mpci/stax/.
Crop Insurance. How did the 2014 Farm Bill change crop insurance? Retrieved November 12, 2019, from: https://cropinsuranceinamerica.org/how-did-the-2014-farm-bill-change-crop-insurance/.
Crop Insurance. How did the 2018 Farm Bill change crop insurance? Retrieved November 12, 2019, from: https://cropinsuranceinamerica.org/how-did-the-2018-farm-bill-affect-crop-insurance/.
Crop Insurance. Just the Facts. (n.d). Retrieved November 12, 2019, from: https://cropinsuranceinamerica.org/just-the-facts/#.VQn2Po7F-AU.
Crop Insurance. What is crop insurance? (n.d). Retrieved November 12. 2019 from:
https://cropinsuranceinamerica.org/what-is-crop-insurance/.
Crop Insurance. Why is private-sector delivery of crop insurance important? (n.d). Retrieved November 12, 2019, from:
https://cropinsuranceinamerica.org/why-is-private-sector-delivery-of-crop-insurance-important/.
Insurance Information Institute. (n.d.). Understanding crop insurance. Retrieved November 11, 2019, from: https://www.iii.org/article/understanding-crop-insurance.
National Corp Insurance Services (NCIS). (n.d.). Leadership. Retrieved November 11, 2019, from: https://cropinsuranceinamerica.org/leadership/.
National Corp Insurance Services (NCIS). (n.d.). How it Works. Retrieved November 11, 2019, from: https://cropinsuranceinamerica.org/about-crop-insurance/how-it-works/.
National Crop Insurance Services. (n.d.). Is crop insurance targeted to specific crops, regions, or farmers? Retrieved November 26, 2019, from https://cropinsuranceinamerica.org/is-crop-insurance-targeted-to-specific-crops-regions-or-farmers/.
TCI Insurance. (2019, June 28). Crop-Hail Insurance: How Does it Work? . Retrieved November 26, 2019, from https://www.tciteam.com/crop-hail-insurance-how-does-it-work/.
USDA ERS. (n.d.). Crop Insurance. Retrieved November 11, 2019, from: https://www.ers.usda.gov/agriculture-improvement-act-of-2018-highlights-and-implications/crop-insurance/.
USDA Risk Management Agency. (n.d.). History of the Crop Insurance Program. Retrieved November 11, 2019, from: https://legacy.rma.usda.gov/aboutrma/what/history.html.
USDA Risk Management Agency. (n.d.). Farm Bill. Retrieved November 11, 2019, from: https://www.rma.usda.gov/farmbill.
USDA Risk Management Agency. (n.d.). Supplemental Coverage Option for Federal Crop Insurance. Retrieved from https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Supplemental-Coverage-Option-2017.
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