Crop Insurance Letter to the Leadership of the Agriculture Committees.
2/15/08

The Honorable Tom Harkin
Chairman
U.S. Senate Committee on Agriculture, Nutrition and Forestry
Washington, DC 20510

The Honorable Collin Peterson
Chairman
U.S. House of Representatives Committee on Agriculture
Washington, DC 20515   

The Honorable Saxby Chambliss
Ranking Member
U.S. Senate Committee on Agriculture, Nutrition and Forestry
Washington, DC 20510

The Honorable Bob Goodlatte
Ranking Member
U.S. House of Representatives Committee on Agriculture
Washington, DC 20515   

Dear Chairmen and Ranking Members:

As you consider a way forward in completing the House/Senate Conference on the new Farm Bill, we urge you to protect the Federal crop insurance program by including no greater budget reductions than are included in the Senate-passed bill for the program. We are opposed to the magnitude of the House-passed Bill cuts to crop insurance.

Additional cuts will prevent the program from providing service to America’s farmers as has been prescribed by Congress. We fear that cuts deeper than that predicated on current conditions could destabilize the program if and when conditions change as they do in the agriculture sector. We especially fear changes that have the force of law and which, therefore, cannot be corrected without an Act of Congress and any necessary pay for as required by CBO. Farm Bills and Crop Insurance law must be written for the long term taking into account the inevitable and often unpredictable and unforeseeable variables that always inject themselves into agriculture. Changing crop insurance policy on the notion that current conditions will always be the case is shortsighted and risky.

Over the years, Congress has insisted on having the Federal crop insurance program reach out to all farmers, especially small, beginning and limited-resource farmers, in a fair, equitable and non-discriminatory manner and serve as an effective risk management tool.

The crop insurance program is doing just that. In fact, USDA routinely testifies to Congress that the last set of amendments made to the program in 2000 are working and accomplishing the congressional objectives of reaching more farmers and encouraging farmers to buy higher levels of coverage.  

In addition to serving farmers as their premier risk management tool, the crop insurance program helps provide both landlords and lenders with the necessary confidence to contract with farmers. The last development we need today is to create a credit crisis for America’s farmers who would no longer be able to secure financing and rent land without an effective crop insurance program. Furthermore, the crop insurance program, as it works today, helps farmers have the confidence to more effectively market their crops through the futures market, where they can capture higher prices.

Over the last 25 years, the Federal crop insurance has grown substantially and developed into a very expansive and complex program, which was necessary for it to have the capacity to delivery on the congressional objectives. Moreover, Members of Congress have added more objectives for the program in the 2007 Farm Bill. Federal crop insurance must have the continued support of Congress to keep delivering important risk management services to America’s farmers and accomplishing congressional objectives for the program.

In summary, we urge you to oppose budget reductions beyond the Senate-passed Farm Bill levels for the following reasons:  

(1) The crop insurance program has already been cut to fund the Farm Bill—cuts of over $3.5 billion over the next five years are  included in the Senate Bill.

 (2) USDA’s own data show that  payments to crop insurance companies do not cover all approved delivery costs currently, and a recent study by a national accounting firm demonstrates that it costs 24.6 percent of premium to deliver crop insurance and the industry is reimbursed only 20.3 percent on average, and;

(3) The GAO report on the  profitability of the crop insurance industry has been routinely disputed by  reports of large, national accounting firms, including Price Waterhouse Coopers (1997, 1999), Deloitte & Touché (2004) and Grant Thornton  (2007). Reports by these national accounting firms consistently conclude crop insurance profitability is less than the profitability of all property and causality (P&C) lines of  insurance while embracing greater risk and volatility. Furthermore, under questioning by the House Agriculture Committee, GAO recently submitted a  one-page report to the Committee admitting their 2005 report comparing the profitability of crop insurance and P&C insurance did not use the exact same years in the analysis and that using different years understated P&C profitability for the  comparison by 67 percent.

Thank you for your favorable consideration of our views. We look forward to answering any questions you may have regarding our position.

Sincerely,

American Association of Crop Insurers
Crop Insurance Professionals Association
Crop Insurance Research Bureau
Independent Insurance Agents and Brokers of America
National Association of Crop Insurance Agents
Rain & Hail L.L.C.
Rural Community Insurance Services