Crop insurance plan aims to reduce deficit

MINNEAPOLIS – The U.S. Department of Agriculture released the final draft of a new crop insurance plan Thursday that it said will save the federal government about $6billion over 10 years.

Agriculture Secretary Tom Vilsack said $4billion of the savings would go toward deficit reduction, while $2 billion would be used to expand farm risk management programs and the popular Conservation Reserve Program, which pays landowners to take environmentally sensitive land out of production and convert it into wildlife habitat.

“There is a growing consensus in the country and certainly in rural areas that we need to be paying attention to the deficit, and this is our effort at agriculture and USDA to do our part in deficit reduction,” Vilsack told reporters during a briefing in Washington.

The program as currently structured would cost $29.5billion over the coming 10 years. The changes would cut that to $23.5billion. The projected savings are down, however, from the USDA’s original proposal for an $8.4billion reduction.

The new plan achieves its savings in large part by eliminating the kind of windfall government payments that were triggered by sharp commodity price spikes in recent years. It will do that by capping the administrative and overhead expenses crop insurance companies can collect. Agents can expect average commissions of $1,140 per policy, Vilsack said.

Crop insurance covers part of farmers’ losses when crops fail and helps them get credit because lenders know they will be able to repay their loans. While participating farmers pay premiums, the government subsidizes the program to keep it affordable. Last year, it paid crop insurers $3.8billion, more than double the $1.8billion it paid in 2006.

Farmers’ premiums won’t go up under the new plan because they’re fixed by Congress, Vilsack said. Some farmers may even pay lower premiums because the plan will introduce performance discounts, he said.

Exactly how the $2 billion for expanded risk management tools and the Conservation Reserve Program will be spent hasn’t been determined, they said.

Currently about 31million acres are enrolled in CRP. The crop insurance savings will let the USDA expand the program to close to 32 million acres, Vilsack said. A sign-up period will be held sometime this summer.