Did USDA defy Congress with crop insurance cuts, or avoid deeper cuts?

By Jon H. Harsch

© Copyright Agri-Pulse Communications, Inc.

Washington, July 22 – Two very different views of the $6 billion cut to federal crop insurance dominated a House Agriculture Subcommittee hearing Thursday.

House Agriculture Committee Ranking Member Frank Lucas (R-OK) warned that “these huge cuts might imperil the delivery system that our producers depend on.” Pointing out that crop insurance had already been cut by $6 billion in the 2008 Farm Bill, Lucas said that “I don't think anyone involved in those negotiations thought that less than two years later the Department would again cut such a massive sum of money out of a program our producers depend on so heavily.”

Lucas discounted the fact that all 16 insurance companies signed USDA's new Standard Renegotiation Agreement (SRA) ten days ago. He said the signing “should not imply that the companies agreed with the terms. If you did not sign the agreement, the company would simply cease to exist and thousands of people would be out of a job.” He also charged that by making a $6 billion cut to crop insurance, USDA went far beyond the discretion Congress intended and effectively “usurped” budget powers “reserved to the Congress.”

Rep. Leonard Boswell (D-IA), Chair of the House Agriculture Subcommittee on General Farm Commodities & Risk Management, shared Lucas' concerns and promised to hold further crop insurance hearings. Saying he's “very concerned with the level of cuts,” Boswell insisted that “tight budgets do not mean we must jeopardize the risk management tools that we have today or put in question what improvements we can make in the future.” He questioned whether the combined cuts of nearly $12 billion will leave “enough left to ensure farmers have access to affordable coverage while trying to expand the program to crops for which it is currently not a viable option.”

Boswell, Lucas and crop insurance industry witnesses warned that the new SRA's cap on agent commissions threatens to seriously undermine the risk management services provided to farmers and ranchers.

USDA Risk Management Agency (RMA) Administrator Bill Murphy's response to such concerns was to assure subcommittee members that the new SRA provides “benefits to the agricultural community and the American taxpayer.” He said “RMA and the companies negotiated in good faith and with respectful dialogue resulting in an agreement that provides a reasonable rate of return to the companies for delivering the program, and will achieve $6 billion in savings over the next 10 years.”

Murphy said that while $4 billion of the savings will go to deficit reduction, the remaining $2 billion “will support high-priority risk management and conservation programs” including the Conservation Reserve Program (CRP) and RMA's Pasture, Rangeland, and Forage (PRF) program. He added that “The new SRA will have no adverse impact on farmers’ premium costs. In fact, some farmers may even see reduced insurance costs with a performance-based discount or refund that result from the savings generated by this agreement.”

Arguing that the American Growers Insurance Company “failed in large part because of high commissions paid to retain and acquire agents,” Murphy said that “The new SRA includes a cap on agent commissions to ensure that companies have sufficient funds to pay the other operating expenses in years in which there may not be an underwriting gain. As the regulator for the federal crop insurance program, RMA saw a clear need to ensure that companies have sufficient funds to pay operating expenses, including agent commissions, without resorting to the reliance on uncertain underwriting gains.”

Rep. Earl Pomeroy (D-ND) presented another reason to welcome rather than criticize the new SRA. Recalling the battle to write the 2008 Farm Bill, Pomeroy said that as part of that process, the House Government Oversight Committee “without notice to the Agriculture Committee, held hearings on crop insurance.” He said that hearing drew on a flawed GAO report which characterized crop insurance as “unjust payment to the private sector” and “was precisely what every enemy of farm programs wanted.” As a result, Pomeroy recalled, “We came within an eyelash of devastating, mindless cuts imposed by those who don't know the first thing about risk management for farmers.”

Pomeroy said the choice is whether to have people knowledgeable about crop insurance make sensible cuts, or let others make cuts “with a meataxe.” He said he commends the crop insurance industry “for taking the tough medicine” and concluded that he's confident the new SRA will continue to provide farmers with “quality risk management products.” He added that capping commissions became necessary when crop insurance companies began paying out more in commissions than they received in federal payments, opening the program up to criticism that the subsidy was too large “if companies can cut into it to pay commissions.”

To listen to Stewart Doan's audio report on the hearing, go to: www.agri-pulse.com/uploaded/SRAHearing072210.mp3

To read the testimony from the Crop Insurance hearing, go to: http://agriculture.house.gov/hearings/statements.html

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