Lawmakers are looking at boosting subsidies for supplemental, area-based crop insurance policies to induce growers to buy higher levels of coverage, which could potentially reduce the demand from farm groups for ad hoc disaster assistance.

Economists say the expanded insurance coverage could particularly benefit farmers during periods of relatively high prices and input costs when farmers are unlikely to get payments from the two major commodity programs, Price Loss Coverage and Agriculture Risk Coverage.

It remains to be seen whether lawmakers would opt for the crop insurance expansion over putting more money into PLC and ARC in the next farm bill. 

Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., told Agri-Pulse in a recent interview she is considering expanding the number of crops eligible for something like the Stacked Income Protection Plan, or STAX, which is currently limited to cotton growers. With STAX, farmers can insure 75% to 90% of their county’s expected revenue, with the government picking up 80% of the premium. 

The government generally subsidizes 62% of the premiums on conventional policies. Farmers can buy coverage for as much as 85% of their expected revenue but typically purchase less than that due to the relatively stiff premiums for higher coverage. 

STAX comes with a significant downside for some farmers: If they buy STAX, they’re ineligible for ARC or PLC.

Debbie_Stabenow_WW23.jpgSenate Ag Committee Chair Debbie Stabenow, D-Mich.
Texas A&M University economist Bart Fischer, a former top aide to the House Ag Committee who is now consulting with lawmakers on both sides of Capitol Hill, argues expanding STAX or other supplemental coverage could reduce the need for ad hoc disaster assistance. The insurance expansion would provide more certainty to farmers than disaster aid, while also requiring growers to foot part of the cost through premiums. Disaster aid costs farmers nothing.

“To me, the more sustainable thing to do is to increase the premium subsidy” for supplemental crop insurance options, Fischer told Agri-Pulse.

One option Congress could consider, he said, is increasing premium subsidies for the Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO), both of which allow farmers to participate in the PLC program; producers are still eligible to enroll in PLC, but not ARC, if they buy SCO.

SCO covers up to 86% of revenue with a 65% federal subsidy. Farmers can increase their coverage further by purchasing ECO on top of SCO.

About 6-7% of the country's corn acreage and 4-6% of its soybean acreage has been covered by SCO policies over the last three years, according to University of Illinois economist Nick Paulson. Some 4-6% of corn acres and 4-5% of soybean acres have used ECO.

Cotton farmers bought STAX coverage on 6.8 million acres in 2022 and 4.9 million acres this year; about 13.8 million acres were planted in 2022 and 11.1 million this year.

STAX was especially popular in 2022 because cotton prices were at historic highs early in the year, well above the level that would trigger PLC payments. Market prices subsequently plunged. USDA paid $375 million in premium subsidies on STAX in 2022, and farmers collected $760 million in indemnities.

Paulson said providing a STAX-like area insurance option for other commodities would be much cheaper for Congress to do than increasing PLC reference prices for widely grown crops such as soybeans. 

“Raising reference prices would be extremely expensive. An SCO-like option could likely be designed to score much lower,” he said. 

But he cautioned that higher subsidies for the supplemental area-based coverage “could create some perverse incentives for more farmers to use crop insurance as a payment program rather than a risk management program.” Subsidy rates decline at higher coverage levels for conventional policies that are based on a farmer’s individual yields and revenue.

A 10% across-the-board increase in PLC reference prices would cost taxpayers more than $20 billion over 10 years, according to sources familiar with the estimate developed by the Congressional Budget Office. Fischer projected the same amount earlier this year, adding that a 20% increase would cost some $50 billion.

Paulson said the supplemental insurance would be particularly attractive when market prices are above the levels that would trigger payments under ARC or PLC. 

Ohio State University economist Carl Zulauf sees another benefit in expanding supplemental coverage options: Farmers could buy the insurance for land that is currently ineligible for ARC and PLC because it lacks base acreage. About 44 million acres of land that is planted or intended to planted each year lacks base acres, he said. Base acreage allocations for commodity programs were largely determined by whether the land was planted to program crops between 1998 and 2001.

“I would think that a STAX-type program would be a very attractive annual crop insurance program” for non-base acres, Zulauf said in an email. 

While those farmers often already buy conventional revenue policies, which are based on their individual yields and revenue, “most of the available evidence is that [the] individual crop insurance coverage level does not decline when an area buy-up insurance contract is added, and may in fact increase,” he said. 

For Zulauf, it would almost be a no-brainer for farmers to consider buying a supplemental policy for which the farmer only has to pay 20% of the premium. 

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“It is difficult for me to understand why a farmer would not give careful consideration to a STAX-type program with an 80% premium subsidy,” he said. 

bart_fischer_300.jpgBart Fischer, Texas A&M University

Fischer said farmers who buy supplemental coverage shouldn’t be barred from participating in PLC, as cotton growers are with STAX. PLC triggers payments in years when market prices fall below the reference prices, so it can provide better protection during down markets.

Supplemental insurance and PLC are “designed to work in tandem with one another,” he said. 

But Fischer doesn’t oppose continuing the ARC prohibition for SCO and STAX policyholders. Supplemental, area-based insurance coverage is seen as duplicative with ARC, which provides payments when the revenue in a farmer’s county falls below the five-year county average. 

No cost estimates for increasing premium subsidies for STAX-like insurance have been released. Stabenow recently told Agri-Pulse she has identified $4 billion to $5 billion in additional funding for the farm bill. 

Fischer said that would likely be enough to accommodate an expansion in supplemental insurance options. But that would leave little money for increasing reference prices or making other changes in the commodity title. 

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