USDA to Congress: “Crop insurance is a vital part of the farm safety net”

“Crop insurance is a vital part of the farm safety net and has become an integral part of business life for a large majority of American farmers and ranchers,” said USDA’s Risk Management Agency (RMA) Administrator William J. Murphy in testimony before the House Subcommittee on General Farm Commodities and Risk Management.

“[Farmers] would find it difficult to continue providing the United States and the world with an abundant supply of food, fiber and fuel without the protection provided by this part of the farm safety net,” he said in his June 24, 2011, appearance before Congress.

With droughts, floods and other disasters affecting crop production across many parts of the U.S., “this year is an excellent example of how important the farm safety net has become,” said Murphy. “Food security is important to this country. I’d hate to be put in a position where we don’t have these [crop insurance] programs and have widespread losses across the country.”

Murphy detailed the unique public-private partnership which makes the crop insurance program unique and how RMA works directly with its private partners—the 15 approved insurance companies—and the agents who deal directly with farmers and ranchers.

“Producers purchase Federal crop or livestock insurance from insurance agents operating in their communities, who sell the insurance on behalf of the 15 insurance companies,” he explained, noting that “this relationship leverages the respective strengths of the public and private sectors.”

Murphy also explained how participation in the crop insurance program has increased significantly, following changes enacted in 1994 by Congress when fewer than 100 million acres of farmland were insured under the program. “Today, over 250 million acres of farm and ranch lands are covered by Federal crop insurance, for an overall participation rate exceeding 80 percent for the major crops.”

“As the amount of insured acreage has increased, so too has the liability, or value of the insurance in force,” said Murphy. For example, in 1994, program liability was less than $14 billion, compared to the 2011 liability which is estimated to exceed $100 billion. But the program has seen sustained growth as demonstrated by the increasing proportion of acres insured at buy-up levels over the last decade. “Today, over 90 percent of all policyholders purchase buy-up levels of coverage,” he added.

Additionally, Murphy explained to Congress that one of the most important considerations for the Federal crop insurance program is the premium cost for producers. “If premium rates are too high, producers will not participate in the crop insurance program. If premium rates are too low, actuarial performance will deteriorate,” he added.

That is why government involvement is necessary. Without it, affordable and widely available coverage wouldn’t exist. And without crop insurance, farmers would be hard pressed to obtain necessary operating capital from lenders.

Murphy explained many lenders now require crop insurance coverage in order to make operating loans to crop and livestock producers, and many producers use crop insurance as collateral for the loans.