Congressional Research Paper White Paper Federal Crop Insurance Program Support for Natural Disasters

WASHINGTON, July 22 (TNSrep) — Congressional Research Service issued the following In Focus white paper on the Federal Crop Insurance Program Support for natural disasters (No. IF11924) at July 21, 2022is an agricultural policy researcher Stephanie Rosch.

Here are the comments:

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Natural disasters – events such as severe droughts, floods, and storms – can cause damage to crops and animals as well as other physical and economic damage to agricultural activities. The Federal Crop Insurance Program (FCIP) provides farmers with the opportunity to purchase insurance against economic losses caused by growing and market conditions. By insuring growth, FCIP policies can also compensate farmers for financial losses caused by natural disasters. How FCIP protects farmers from losses related to natural disasters depends on the type of disaster, the type of FCIP policy purchased, and the level of coverage selected by the farmer.

FCIP is permanently authorized under the Agricultural Adjustment Act of 1938 (PL 75-430, 52 Stat. 72) and the Federal Crop Insurance Act of 1980 (PL 96-365, 7 USC Sec.Sec.1501 is seq.), as amended. It has the power to generate stable, permanent income. FCIP does not require a federal disaster designation or declaration to initiate payments. FCIP insurance funds are priced based on their ratings. The federal government subsidizes farmers’ premiums for these insurance policies to encourage farmers to participate in the program. For more information, see CRS Report R46686, Federal Crop Insurance: Getting started.

In addition to FCIP, a US Department of Agriculture (USDA) offers several programs to help deal with agricultural damage after a natural disaster. For an overview of these programs, see CRS In Focus IF10565, Federal Disaster Assistance for Agriculture.

Risks of the Insured

FCIP crop insurance policies protect against damage due to drought; temperature; snow; high humidity, rain, or rain; snow; to turn off; cold, rainy weather; wind; the storm; the storm; storm or hot depression; another fire; an earthquake; insect and animal damage; plant diseases; volcanic eruptions; and other causes of loss. These policies also include the lack of irrigation water in the event of disasters or natural disasters. Some policies cover losses due to declining market prices.

Availability of Availability

FCIP coverage is available for all purchases US sections. The FCIP protects many field crops, a variety of specialty crops, and pastures. The right thing to do is buy before a natural disaster strikes.

For most crops insured under the FCIP, planting is measured based on yield or income. Disaster coverage (CAT) pays when the yield is between 0% and 50% of the agricultural yield or between 0% and 65% of the regional yield. Higher levels of productivity and returns are available in 5% increments. For some policies, coverage can exceed 85%. In order to reduce the tendency of farmers to take more risk after buying insurance (for example, moral hazard), there are no policies that provide 100% loss.

In addition, some annual crops may qualify for FCIP fees if adverse weather and other natural events prevent timely planting. For more information on these payments, see CRS Report R46874, Federal Crop Insurance Program (FCIP): Replanting, Delayed Planting, and Protected Planting.

The federal government provides adequate funding for the CAT. Farmers pay an increasing share of the cost of most products, up to 62% of the total cost. In addition to their premium price, farmers pay a fee for each crop. Federal foreign aid for FCIP $8.1 billion per year from FY2011 to FY2021.

Purchased Cover

From 2011 to 2021, total acres insured through the FCIP increased from 266 million to 444 million acres (Figure 1). The share of acreage insured on a larger scale also increased during this period. All of this has increased the amount of support that FCIP can provide in the event of natural disasters.

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Figure 1. FCIP Acres Insured by Coverage Level

Source: CRS using data from the USDA Risk Management Agency Business Summary database, downloaded July 11, 2022.

Comment: Years and years of harvest. Includes crops insured under acreage policies only. Risks include self-harm. Other lending criteria include yield and cost coverage.

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Countries with higher yields that are insured under the FCIP may receive more assistance from the program in the event of natural disasters. States in the Midwest, as well California and Texashad the largest yields protected by the FCIP in 2021 (Figure 2).

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Figure 2. Yields Protected by FCIP in 2021

Source: CRS using data from the USDA Risk Management Agency Business Summary database, downloaded July 11, 2022.

Note: Excludes price and limit for milk and livestock.

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FCIP for Natural Disaster Relief

Between 2011 and 2021, droughts, floods, hurricanes, and related events resulted in the loss of most FCIP acres (Figure 3) and payments made (Figure 3). Payments were made for natural disasters with federal disaster designations and notices, for other extreme weather and scale, and other causes of loss. The widespread drought in 2012 and 2013 contributed to a significant increase in the number of acres affected by losses and payments in those years. Flooding and wet conditions led to more FCIP claims being paid in 2015 and 2019.

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Figure 3. FCIP Insured Acres and Losses

Source: CRS using data from USDA Risk Management Agency Cause of Loss data files, downloaded July 12, 2022.

Comment: Years and years of harvest. “Drought, Heat, and Other” includes losses due to drought, heat, irrigation failure, excessive sun, and hot winds. “Frost, Cold, and Related” includes loss due to frost, frost, cold weather, and winter weather.

“Flood, High Humidity, and Other” includes losses due to high humidity, heavy rain, heavy rain, and flooding. “Hurricane, Cyclone, Tornado, and Wind” includes losses due to hurricanes, tropical depressions, winds, hurricanes, tornadoes, and hurricanes. “Depreciation” includes losses due to declines in market prices. “County and Margin Rules” include losses due to reduced county yields and revenue. “All Other” includes loss due to hail, fire, insect damage, disease, and other perils.

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Figure 4. FCIP Payments by Type of Loss

Source: CRS using data from USDA Risk Management Agency Cause of Loss data files, downloaded July 12, 2022.

Note: Fees are not adjusted for inflation. Years and years of harvest. The 2019 proposed fee does not include payments for planted acres authorized under the 2019 Disaster Relief Supplement Act (PL 116-20). See Figure 3 for a description of each loss group.

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Problems a Congress

Between 2011 and 2017, Congress they did not provide additional support for agricultural losses. FCIP indemnities provided extensive disaster relief, including widespread drought in 2012-2013 and floods in 2015. As of 2018, Congress provide contingency funds to cover certain losses related to natural disasters occurring in 2017-2021, including $10 billion from the State Funds Expansion and Emergency Relief Act (PL 117-43). USDA used the funds provided to increase the assistance available to FCIP and to pay those who did not buy into the program. Farmers who received this money had to buy for two years from FCIP or through FCIP Non-Insurance Plan to Help with Crop Problems. For an overview of this support, see CRS In Focus IF11539, Wildfires and Hurricanes Indemnity Program (WHIP). Congress may consider how farmers buy FCIP products by continuing or extending emergency assistance.

Farmers planting uninsured crops choose to purchase FCIP insurance with a level of reimbursement. The data show that farmers buy fewer FCIP units in areas where wages are higher, which occurs in areas with a higher risk of crop loss. The CAT provision is a low-cost FCIP policy that farmers can purchase. The federal government pays 100% of the cost; Farmers pay administrative fees. If Congress wants to expand FCIP’s role in dealing with natural disasters, one way would be to get CAT support to attract farmers in areas with high risk of crop loss.

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The white paper is posted on: