Companies participating in USDA’s Federal crop insurance program (Approved Insurance Providers or “AIPs”) have much to like about the new 2014 Farm Bill being finalized on Capitol Hill this week. Congress repealed a slew of traditional agricultural programs like Direct Payments, ACRE, and Countercyclical, but it left Crop Insurance standing as the clear leading vehicle for supporting American farm producers.
For AIPs, the positives went beyond this simple vote of confidence in the FCIC Crop Insurance program itself. AIPs will benefit, among others things, from:
This achievement should be savored and appreciated by the crop insurance community – AIPs, agents, RMA, Congressional supporters, and customers. It caps a steady, consistent effort to improve Federal crop insurance to the point it could replace wasteful and erratic ad hoc disaster programs – a staple of the 1980s and 1990s and now virtually extinct. This effort has spanned three decades and three Administrations, including my own time as RMA Administrator from 1993 to 2001. It is a big win for taxpayers and consumers, and farmers too have voted with their feet and checkbooks to support this business-oriented approach.
Success carries a price tag, though. As the largest, most prominent, and most expensive form of Federal farm support, Federal crop insurance in the post-Farm Bill era now must expect to live under a spotlight, with critics waiting for a mistake, a breakdown, a “gotcha” moment. And nowhere will the scrutiny be more intense than on AIPs.
Don’t misunderstand. This is a good problem to have. But navigating it will require thought and planning. Beyond the many vital implementation issues AIPs and RMA must address immediately to get the new law up and running, I see four challenges for AIPs -- and RMA as their partner -- for the longer term in this new environment:
RMA and the FCIC Board deserve credit for making enormous strides on this issue. AIPs now have a strong self-interest in helping to finish the job.
By the time the 2019 Farm Bill comes around – and probably sooner – budget cutters will return with crop insurance high on the target list. And within crop insurance, “delivery costs” will look the most tempting. Rather than wait to fight the inevitable proposals to cut A&O, cut underwriting gain, cut subsidies, so on, perhaps this time the AIP community should consider taking the lead and control its own destiny. This means AIPs making an organized effort to develop their own plan to reduce delivery costs, not through arbitrary budget cuts but organically, through normal business forces like innovation, new technology, streamlining, efficiencies, and competition.
There is a wealth of innovative talent in the AIP community, and addressing the reality of shrinking taxpayer budgets is easily the biggest challenge to the long-term sustainability of FCIC crop insurance in its current form. AIPs and RMA have made huge strides in modernizing the program’s administrative side. The ultimate solution could take any one of a number of forms, from something structural – such as allowing some type of price competition among AIPs -- or developing industry wide cost-saving improvements that would allow an SRA-wide reduction in supports. Either way, it would be far better if AIPs came forward with an answer—planned in advance and implemented in an orderly way -- rather than waiting for one to be forced upon them by Congressional critics.
But for now, let’s not bury the lead. Congratulations to all involved in the 2014 Farm Bill. It was a long time coming and bodes well for American agriculture in the broadest sense.
Ken Ackerman was Administrator of USDA's Risk Management Agency from 1993-2001, and continues to represent clients from all parts of the crop insurance community.