Payments will require low yields or revenue | The government will still pay up to two-thirds of the crop insurance premiums
CHICAGO, Ill. (Reuters) — U.S. farmers and bankers have almost a year to get ready for major changes in 2015 as crop insurance rather than direct cash payments to producers becomes the centrepiece of farm policy under the country’s five-year farm bill.
For 2014 plantings, analysts said there will be no major changes to crop insurance except sharply lower grain prices than in 2013, which will lower potential payments and premiums.
Then in 2015, farmers will have a new insurance option for supplemental coverage based on local county yields.
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federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
“Other than commodity prices there is not a lot of difference between 2014 and 2013,” said Michael Barrett, senior vice-president for crop insurance at Farm Credit Services of America, one of the biggest lenders to farmers in the plains states. “The structure of the policies is pretty much the same. The cost sharing for the premium didn’t change.”
But this year will be a major transition for bankers, insurers and farmers.
“The message is crop insurance does become the foundation of the farm bill and the primary safety net for producers because they have lost all those direct payments,” Barrett said.
The farm bill was delayed for nearly two years by wrangling over proposed cuts in food stamps and other aid for the poor, which will still account for 75 percent of the estimated $956 billion US budget over 10 years.
But for farmers, the key debate was crop insurance. Among the burning issues were what is covered, who pays and how much, especially after five years of record farm earnings and two years after the worst drought in half a century.
The U.S. Department of Agriculture has traditionally subsidized farmers’ insurance costs for planting crops from grains and oilseeds to cotton, peanuts, fruits and vegetables. But it also bolstered farm finances through systems of direct cash payments for farmers who signed up for programs like conservation policies.
“That has changed,” said Chris Hurt, extension economist at Purdue University, who said that previous farm bills’ automatic payments, regardless of good times or bad times, had been doomed by politics. “This program does shift us back to counter-cyclical. It will be some kind of need, whether low yield or low revenue, to get payments.”
Dale Moore, executive director for public policy at the American Farm Bureau Federation, said: “What we’ve seen over the past couple of decades regarding the trend in farm policy is a highlight of this bill: moving farther away from the income transfer programs toward an insurance model.”
USDA will still pay up to two-thirds of the insurance premiums, with the subsidy going directly to the insurers.
