Congressional Research Service News In Focus White Paper on the Federal Crop Insurance Program – Limits on Administrative and Employee Subsidies

WASHINGTON, Aug. 11 (TNSrep) — Congressional Research Service issued the following In Focus white paper on the Federal Crop Insurance Program – limits on administrative and operational subsidies (No. IF12189) Oga. 10, 2022is an agricultural policy researcher Stephanie Ross.

Here are the comments:

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The federal crop insurance program (FCIP) provides farmers with the opportunity to purchase insurance against economic losses caused by a variety of risks, including growth and market conditions. The government oversees the programs and provides financial assistance to farmers to encourage farmers to participate in the program. FCIP plays an important role in helping farmers to overcome financial difficulties, with more than 444 million acres. $150 billion in crops and livestock insurance cost in harvest year 2021. Annual federal program outlayed $9.1 billion for FY2012-FY2021, adjusted for inflation.

The US Department of Agriculture (USDA) does not sell FCIP programs directly to farmers. Private companies – known as Approved Insurance Providers (AIPs) – sell and issue FCIP policies under two annual contracts with USDA: Standard Reinsurance Agreement (SRA) and Livestock Price Reinsurance Agreement (LPRA). USDA provides assistance to AIPs to cover the costs of selling and operating the FCIP, as set out in the SRA and LPRA.

Program Funding

Under the SRA and LPRA, USDA provides program delivery support to AIPs calculated as a percentage of the total cost of each plan sold. For the spread of disaster (CAT), the program support is 6%. The grant for the non-accident program is called the administrative and operating (A&O) grant and ranges from 12% to more than 22% of the total amount paid depending on the type of policy. For example, the Income Protection plan is a premium price of $60 per acre will receive A&O subsidy of $11.10 per acre (18.5% of the cost price). A fully funded Crop Protection Scheme $20 per acre will receive A&O subsidy of $4.38 per acre (21.9% of the cost price). USDA offers an additional 1.15% in what is called “SnapBack” support for certain products that are sold in certain areas with a high risk of loss. The total amount each AIP earns from providing program support depends on the number, types, and locations of sales.

USDA sets the price of the FCIP policy every year based on market prices, yield, yield risk and prices. As market prices increase, A&O fees and subsidies for policies tend to increase as well. High value crops have higher prices than low value crops, hence higher A&O support. The total cost of programmatic support tends to rise over time as the number of points sold increases, and FCIP contributions increase (Figure 1).

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Figure 1. FCIP Costs for Program Delivery

Resources, FY2000-FY2021

Source: CRS using Federal Crop Insurance Corporation/Risk Management Agency’s Financial Statements, several financial years.

Note: Amounts not adjusted for inflation. The cap and cap are annual minimums and maximum limits for certain program benefits as specified under the Standard Reinsurance Agreement.

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Limits on A&O Subsidies

Prior to 2011, the SRA did not include a limit on A&O benefits. In the Food, Conservation, and Energy Act of 2008 (PL 110-234; 2008 farm bill, Sec.12016), Congress ordered to reduce subsidy rates for programs to reduce costs. The 2008 farm bill was also required USDA renegotiating with the SRA to apply in 2011 reinsurance (Sec.12017 (8) (A) (i)).

From 2011, the revised SRA established annual minimum limits and upper limits (ie, cap and cap) on the amount of money spent on A&O support for certain outcomes, applied to all AIPs. If the total A&O interest of all AIPs for all applicable laws were exceeded in any given year, each AIP would receive a share of the proceeds based on the company’s share of all A&O activity. If the total amount paid by A&O was less than the annual cup, each AIP would receive a portion of the cup divided according to the company’s share of the total A&O income.

The A&O subsidy cap ensures that all AIPs collectively receive a minimum A&O fee for selling certain FCIP policies. The A&O grant rate reduces the amount of program funding as policy sales and/or market rates increase.

The SRA also included annual cap and cap increases from 2011 to 2015 to account for inflation. Since 2015, the cup and cup levels have stabilized (Table 1).

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Table 1. A&O Subsidy Cup and Cap, in $ million

Source: CRS using Risk Management Agency data and Standard Reinsurance Agreement.

Notes: NA = not applicable. The repayment period is 12 months from the start July 1st of each calendar year.

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The cap and cap do not apply to CAT, regional, seasonal, or cross-border coverage or any policies sold under the LPRA. Policies that are usually given to cup and cup may not be allowed to plant seeds and other components. The share of total wages not exempt from the A&O subsidy cap and cap increased from 7% in 2011 to 18% in 2021 (Figure 2).

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Figure 2. Total Premium for FCIP Policies Sold by Year and Policy Type

Source: CRS using Risk Management Agency Summary for Business database, downloaded July 25, 2022.

Note: The cost includes the manufacturer’s premium and the federal subsidy and is not adjusted for inflation. Policies that are not excluded from the A&O cap include risk coverage, regional coverage, weather coverage, cross-border coverage, and all policies sold under the Animal Cost Recovery Agreement. All other points are usually followed by the A&O cap but may be assigned to other regions and crops.

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Limits on SRA Renewal

USDA used the powers to renegotiate the existing SRA and LPRA in 2011, including creating an A&O subsidy cap and cap. The 2008 farm bill bans it USDA renegotiating the SRA no more than once every five insurance years since 2011 (Sec.12017(8)(A)(ii)). The 2014 Farm Bill (PL 11379; 2014 farm Bill, Sec.11012) requires future SRA negotiations to be non-budgetary and to maintain or increase funding for the existing program.

Problems a Congress

USDA estimates that the 2011 SRA renegotiation was achieved $6 billion in the 10-year cost savings (FY2011FY2020) of the program in line with 2010 estimates. Since 2011, changes to the program have reduced the continued effectiveness of the A&O subsidy cap as a cost-saving mechanism. Changes in livestock and grazing land – which have been exempted from A&O interest – have increased sales of these policies. FCIP has also introduced new non-interest bearing A&O policies, including mandated coverage Congress in the 2014 farm bill and the expansion that was created using the mandates. Some Members of Congress He also said that the increase should be increased to reflect inflation. Increasing the cap may also result in a reduction in capacity as a cost-cutting measure.

A&O resources may not reflect the actual cost of buying and selling. Historically, crop insurers have reported that A&O benefits are not covered by actual costs incurred. In a 2017 study, the Government Accountability Office (GAO) reported that AIPs benefiting from the program exceeded. USDA is interest rates and similar rates of return in the market. Congress can determine whether A&O subsidy rates are insufficient, sufficient, or excessive compared to the costs required to deliver the program.

In addition, the GAO recommended this Congress Repeal of the 2014 Act which required the SRA’s deliberations to be de-political and streamlined. USDA renegotiate with the SRA for additional funding. Congress They may also consider whether the existing controls and the terms of the SRA and LPRA are sufficient to achieve the desired cost control objectives of the program.

The A&O subsidy received on the plan sold varies by crop and year due to changes in market prices. The cap can reduce the cost of subsidies for years of high prices. Specialty crop insurers have reported that the A&O subsidy component has impacted their business in 2021, as commodity prices have risen and the margin required to cover A&O interest rates has exceeded previous levels.

House-passed the USDA FY2023 appropriations bill (HR 8239, Sec.765) includes $50 million in additional funding for special treatment of A&O crops. Congress may consider whether A&O subsidy rates and limits force insurance to private crop growers.

For more information, see

* CRS Report R46686, Federal Crop Insurance: Getting started

* CRS Report R45291, Federal Crop Insurance: Short Shipping Fees

* CRS In Focus IF12047, Farm Bill Primer: What is the Farm Bill?

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The white paper is posted on: