AFBF Issues Crop Insurance 101 Report

USAgNet - 05/05/2024

For nearly 100 years, the history of the farm bill largely tracks the history of food production in the United States as the legislation has evolved to meet the needs of farmers and consumers alike. Agriculture's role in providing food security, and in turn national security, to the United States is more important than ever.

And now, work on the next farm bill continues during a period of volatility on every front - political, economic, environmental and beyond.

Crop insurance is exactly like it sounds: an insurance product designed to help shield farmers against a myriad of potential risks, ranging from adverse growing conditions to market fluctuations. This coverage fills crucial gaps that private insurance products may neglect or find impossible to address alone.

Supported by the federal government, these policies provide financial stability for farmers, who can tailor coverage to suit their unique operational needs from a variety of policy options. Products are available for annual crops, perennial tree crops and livestock and may protect against the value of the commodity, the replacement value of a damaged or destroyed commodity, or the operating margin for a commodity.

Background & Funding

Crop insurance has its roots as part of the policy response to the Great Depression and was permanently authorized under the Agricultural Adjustment Act of 1938 and the Federal Crop Insurance Act of 1980. The Federal Crop Insurance Corporation is the agency that finances the program's functions through mandatory appropriations of "sums as necessary."

The Risk Management Agency (RMA) has discretion over policy offerings, coverage and administration. The Congressional Budget Office (CBO) projects net spending each year and estimates the costs of supporting a portion of a farmers' policy premium, compensating private insurers for their administrative and operating expenses and reinsuring losses from policies sold (transferring all or part of the risk to another insurer).

Projections depend partly on commodity prices. If commodity prices increase in the future, the expected value of insured crops would rise, leading to higher anticipated values for insured liability and premium discounts compared to scenarios with lower commodity prices. For marketing year 2024, the CBO projects a total program cost of $12.37 billion.

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