Crop Insurance Appropriations - A Clue for the next SRA?

The great battle for the 2014 Farm Bill is thankfully over, but that hasn't stopped the U.S. Congress from continuing to tinker with Federal Crop Insurance.

Most recently, in late May, the House and Senate Appropriations Committees each voted to report their versions of bills to fund USDA in fiscal 2015, and each took the occasion to insert language telling USDA's Risk Management Agency (RMA) and Federal Crop Insurance Corporation (FCIC) how to run crop insurance.  The full House and Senate will vote on the measures in the next few days.

Click here at watch the entire House markup.

But while mostly routine, one piece of report language raised eyebrows because it evoked the magic word "SRA," the Standard Reinsurance Agreement between RMA and its participating private insurance companies, crop insurance's highly sensitive financial backbone.

Money-wise, there were few fireworks:

  • The House Committee proposed $77,094,000 to fund RMA operations in 2015, a nice increase over the $71,496,000 level for fiscal 2014 and a nod to RMA's expanded role under the new Farm Bill.  The Senate likewise proposed an RMA increase, to $76,779,000.
  • For FCIC itself, each side approved the traditional "such sums as are necessary," a nod to the unpredictability of annual insurance indemnities based on weather and other uncontrollable forces, estimated at about $8.6 billion.

Pet Projects

Likewise, most of the Committee report language also was routine.  It included usual pitches by Congressmen and Senators for favorite pet projects:

  • The House urged RMA to expand its quarantine coverage for California avocado and citrus growers to other states and crops.
  • The Senate, for its part, pressed RMA to fund studies on the feasibility of covering business interruption from integrator bankruptcy and catastrophic losses to poultry, not to mention quicker adoption of special prices for organic crops.

The SRA Hint

It was the House, though, that went further and broached the SRA, saying this:

"The Committee is aware of concerns that the Standard Reinsurance Agreement (SRA) currently in effect has caused disparate treatment of crop insurance agents depending on the crop(s) they service and expects that as the Department begins the process of renegotiating the SRA it will address this inequality."

The Committee's specific point involved technical limits on agent compensation that in some circumstances appear to favor established row crops over specialty crops - a problem that can be fixed only with a new SRA.  But the implication went deeper.

The last SRA renegotiation between RMA and its participating companies, in 2010, was unusual.  RMA managed to win some $6 billion in payment reductions to companies over a five-year period, with $4 billion going directly to "deficit reduction" - a big win for taxpayers.  Congress praised this result at the time, but found it troubling.  RMA had conducted its negotiation by itself and left Congress out of the cost-cutting process.  As a result, House and Senate Agriculture Committees (and thus the overall farm community) had no chance to tap the SRA savings for other farm or agriculture priorities.

As a result, in the 2014 Farm Bill, Congress inserted language to prevent this outcome from happening again.  Supporters called it a "budget neutrality" provision.  (See Farm Bill section 11012).  It said that, in future SRA renegotiations, RMA must keep its projected payments to companies -- underwriting gains and expense reimbursements -- level, no ups or downs, with any unavoidable savings going automatically to RMA programs, not deficit reduction.

This raised some questions.  SRA negotiations over the past two decades have become increasing unruly affairs: complicated, time consuming, highly political and unpredictable.

  • With budget savings off the table, why bother?
  • Or, by taking cost off the table and limiting discussion to more technocratic issues, might "budget neutrality" actually take the sting out of SRA talks, make them more tame, less contentious, and more controllable?
  • Or, going farther, might it tempt one side or the other to try to side-step the limitation by hiding sweeteners or cuts amid the SRA's complex payment formulae?

RMA and its participating companies have many reasons to want revisions in the SRA short of big picture budget issues.  New Farm Bill programs like SCO and STAX are likely to shift risk profiles in the program and raise novel implementation issues.  A next renegotiation has been widely expected next year.

Now, Congress too seems to be arguing in favor of a new SRA.  As the "to-do" list of SRA corrections grows longer, the likelihood of a near-term renegotiation, with all the associated unknowns, grows stronger.

For the full texts of the House and Senate Appropriations reports see:

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