CROP INSURANCE: HOW IT WORKS AND WHY IL CORN IS DISAPPOINTED WITH RMA’S ANNOUNCEMENT

On Monday, the U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) announced that they had finalized their premium re-rating that had been in the works for almost a decade.  This news was good and bad for Illinois corn farmers who rely on crop insurance as a risk management tool for their business.

Much the same way that you purchase insurance on your home, car, or life to protect yourself in the event of an accident, farmers are able to purchase insurance on their crops to protect them against harsh weather conditions and insect or disease pressures that they can’t control.  Without crop insurance, farmers could potentially be forced out of business during a rough year … but imagine the devastation when the weather isn’t optimal two or three years in a row!

The RMA manages the federal crop insurance program and they have guidelines to follow which are set by Congress.  The one we’re talking about today, regarding the re-rating, states that for every dollar a farmer pays into the crop insurance program via his premiums, he should get a dollar out.  This is a guidline that stands over time that allows for the program to be accurarially sound and results in no one really making significant profit on the programs.  After all, the programs were created to guarantee food supply and ensure that millions of farmers weren’t going out of business in a rough weather year not for crop insurance companies to make money.

But in Illinois, corn farmers and soybean farmers don’t actually get one dollar out (over time) for every dollar they put in.  For Illinois corn farmers, that number is actually 61 cents out for every dollar in and for Illinois soybean farmers, the number is 66 cents out for every dollar in (1995-2007 data).  What this basically means is that the program isn’t working as it was designed and the RMA was charged with evaluating premiums to determine appropriate numbers to make the program function better.

Where an opportunity existed to make the program function as intended, politics got in the way.  Crop insurance companies that have been making profits off crop insurance spoke to their elected officials, resulting in a letter from several members of Congress that the re-rating process should be open to public debate.  Except the process wasn’t about political power, it was about accurarily sound insurance programs.

Monday’s decision did not result in what’s best for Midwestern farmers and Illinois Corn is disappointed.  What could have been a huge opportunity for the USDA to actually help Midwestern farmers, ended up a watered down political decision.

Read what the ICGA President had to say about the announcement here.

Lindsay Mitchell
ICMB/ICGA Marketing Director

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