WASHINGTON, Oct. 28, 2015 - Almost every year, the White
House has proposed some type of crop insurance cut and farmers and the industry
fought back, arguing that it is now the primary form of risk management. But
with House Speaker John Boehner preparing to step down and “clean the barn” of
tough issues, and GOP leaders eager to nail down a sweeping, two-year budget
agreement before he left, the time proved to be ripe for a significant cut to
crop insurers. A small group of tight-lipped negotiators have been meeting
since last month to cut the deal, with details emerging less than two days before
today’s anticipated vote.
Among
other things, the budget
deal
would cut $3 billion over 10 years by requiring the Agriculture Department to
renegotiate its Standard Reinsurance Agreement (SRA) with the crop insurance
companies and lower the cap on the rate of return on premium to 8.9 percent,
from the current 14.5 percent. Since 2011 the industry’s rate of return
has varied from a loss of 15 percent in fiscal 2012, a drought year, to a gain
of 13 percent in fiscal 2014, according to USDA.
The
chairmen of the House and Senate Agriculture committees, and the ranking Democrat
on House Agriculture, Collin Peterson, all said the proposal originated at the
White House, and that GOP leaders kept the committees completely in the dark until
the last minute. Sources briefed on the talks said crop insurance, conservation
and nutrition cuts were all discussed, but only cuts to crop insurance were
accepted. The White House was equally tight-lipped. Even top officials at the
Agriculture Department were unaware of the provision until late Monday, sources
tell Agri-Pulse.
“I’m extremely upset
with the process,” Senate Agriculture
Chairman Pat Roberts, R-Kan., told Agri-Pulse.
“What we’ve done is open up
the farm bill… If they needed $3
billion I would have been more than happy to put together a package with
(ranking Democrat Debbie) Stabenow.”
House
Agriculture Chairman Mike Conaway predicted the cut would force many insurers
out of business and was organizing a last-ditch effort Tuesday to persuade GOP
leaders to remove the cut from the budget bill before Wednesday’s vote. Plan B
– should Conaway’s effort fail -- was to try to roll back the cut through the
fiscal 2016 omnibus spending bill.
Conaway
stopped short of criticizing Boehner for going along with it. “This is one of
those deals where a tight group had to negotiate it. They can’t have everyone at
the table,” he said, referring
to the budget agreement. “They should have
known ahead of time, and did know ahead of time, that I would object” to the insurance
cut.
A
USDA spokesman responded to the congressional criticism by noting that
Republicans, including the likely next speaker, Paul Ryan, have proposed
cutting crop insurance in the past. “The
reality is this is a negotiated agreement between two sides and it’s unfair for some
people to suggest this was solely an administration proposal when congressional
Republican budget proposals going back several years have proposed similar
cuts.”
Because
the SRA must be renegotiated, the first savings from the cut wouldn’t kick in until
fiscal 2018, and then would only amount to $36 million, according
to the Congressional Budget Office. By 2021, the annual savings are
estimated at $434 million.
The
impact of the cut on the industry will depend in part on the SRA negotiations,
which USDA would be required to complete by the end of next year, said Kansas
State University economist Art Barnaby.
There are 17 companies that currently sell policies, but
one, Wells Fargo, is trying to sell its business. The industry argues that its
actual rate of return is actually less than 4 percent. If that were cut as low
as 2 percent “there will be more companies for sale,” said Barnaby said. He
said cuts to insurers could theoretically lead USDA’s Risk Management Agency to
raise premiums. “Like a balloon, if (you) push on one side it will pop out on
the other side.”
University of Illinois Professor Gary Schnitkey agreed
that the 36 percent cut in crop insurance is “significant” and “would seriously
hamper the (crop insurance) delivery system.”
The
SRA also determines how much agents earn on the policies through limits on the
companies’ administrative and
operating reimbursement. The existing SRA, which took effect in 2011, capped
A&O reimbursement at $1.3 billion and indexed it to inflation.
Joe
Glauber, USDA’s former chief
economist, said the budget requirement would likely be difficult to carry out
in part because USDA and the industry don’t
agree on how to calculate rate of return. He said the impact on companies could
vary widely depending on how underwriting gains and A&O are affected.
The crop insurance issue aside, the budget deal could
provide a boost to a number of programs important to agriculture because the
agreement would raise spending caps in fiscal 2016 and 2017. Food-safety
advocates already are pressing appropriators to use the extra money to increase
the Food and Drug Administration’s funding for implementing preventive measures
required by the Food Safety Modernization Act.
The
National Sustainable Agriculture Coalition wants to restore cuts that
appropriators proposed to the Environmental Quality Incentives Program and
Conservation Stewardship Program. “These
shortsighted cuts severely limit the capacity of farmers and ranchers to
improve soil and water quality, protect pollinators and habitat, conserve
water, and prepare for extreme weather events,” the group said.
#30
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