Crop Insurance Program Provisions-Title XI
Note: Details on Farm Bill program provisions under other titles can be found at the following ERS pages
- Crop Commodity Program Provisions
- Sugar & Sweeteners
- Animal Production & Marketing
- Fruits & Tree Nuts
- Vegetables & Pulses
- Organic Agriculture
- Local and Regional Foods
- Beginning and Disadvantaged Farmers
- Conservation Programs
- Food & Nutrition Assistance
- Rural Development
Under the 2014 Farm Bill, Congress has established several new programs aimed at providing support for revenue or yield losses smaller than those covered by most traditional crop insurance policies. In addition to the ARC program described in Crop Commodity Program Provisions, the U.S. Department of Agriculture’s Risk Management Agency (RMA) will administer two new programs—the Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX)—in addition to the traditional crop insurance program.
ARC and SCO are alternative options—producers who elect ARC for a given crop on a given farm cannot also purchase SCO for the same crop on the same farm. STAX is available only to upland cotton producers. (Upland cotton growers may purchase SCO policies, but not for the same acres they have covered with STAX.)
Benefits under the Federal crop insurance program, including the Supplemental Coverage Option and the Stacked Income Protection Plan for upland cotton producers, are not subject to the eligibility and payment limitations that govern Title I crop commodity programs.
Supplemental Coverage Option (SCO)
The SCO will be made available starting with the 2015 crop and will offer producers the opportunity to purchase area-based insurance coverage in combination with traditional crop insurance policies. Producers will be able to cover a portion of the deductible of their underlying crop insurance policy (yield or revenue), with payments being determined on an area (generally county) basis. The more closely an individual producer’s yields vary in step with the county average, the better the program will cover individual farm losses. While some traditional insurance policies can cover up to 85 percent of farm-level revenue or yield, producers typically insure for around 70-75 percent of yield or revenue. SCO policies provide an option for additional coverage of the layer of crop value between the coverage level of the underlying insurance policy and 86 percent, at a fixed premium subsidy rate of 65 percent. Because SCO covers the active layer of losses, it can have a higher premium rate than many traditional insurance policies for the same coverage level.
Stacked Income Protection Plan (STAX)
STAX provides revenue insurance policies to producers of upland cotton beginning with the 2015 crop, in place of coverage for upland cotton under the new Title I Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC) programs. Similar to SCO, STAX policies will be area policies, basing the loss calculation on the difference between expected and actual area average revenues rather than on individual farm losses. Unlike SCO, which must be purchased in conjunction with a traditional crop insurance policy, cotton producers will be able to purchase STAX either in conjunction with their insurance policies or as stand-alone policies to cover up to 20 percent of revenue, in 5-percent increments. Federal subsidies will cover 80 percent of producers’ premiums.
To provide support while the new program is being implemented, upland cotton producers will receive transition payments for crop year 2014 as well as for crop year 2015 in any areas where STAX policies are not yet available.
Traditional Crop Insurance
Producers can purchase insurance policies at a subsidized rate under Federal crop insurance programs. These insurance policies make indemnity payments to producers based on current losses related to either below-average yields (crop yield insurance) or below-average revenue (revenue insurance).
Policies are sold through private insurance companies, but USDA's Risk Management Agency (RMA) subsidizes the insurance premiums as well as a portion of the companies' administrative and operating expenses and shares underwriting gains and losses with the companies under the Standard Reinsurance Agreement. Premium subsidy rates have increased in recent years, so on average producers pay only around 40 percent of their premiums. Insurance is widely available, though coverage is not available for all crops in all areas, and all types of insurance are not available for all crops. Farmers sign up for insurance before planting, but usually pay premiums after harvest.
Several types of crop yield and revenue insurance are available:
Yield Insurance Plans
- APH (Actual Production History) coverage is the oldest and most widely available crop insurance product. It protects farmers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease.
- Yield coverage levels are based on a producer's expected yield, which is calculated from the farm's actual production history (average yields over the last 4 to 10 years). The farmer selects a yield-coverage level, ranging from 50 to 75 percent of average yield (up to 85 percent in some areas), and an indemnity price, ranging from 60 to 100 percent of the crop price established annually by RMA. If the harvested yield is less than the insured yield (i.e., expected yield times the coverage level), the farmer receives an indemnity based on the difference between the actual yield and the insured yield. The total indemnity equals this yield shortfall, times the indemnity price, times acres insured.
- Catastrophic Risk Protection Endorsement (CAT) coverage provides a lower level of coverage on yield losses at a low cost to producers. It pays indemnities at a rate of 55 percent of the established price of the commodity when farm yield losses are more than 50 percent. CAT premiums are paid by RMA, but producers must pay an administrative fee for each crop insured (these fees are waived for beginning farmers and for farmers who are members of groups designated as socially disadvantaged). CAT coverage is not available on all types of policies. Coverage above the CAT level is often referred to as "buy-up" coverage.
- A version of the Area Risk Protection Insurance (ARPI) policies uses county yields as the basis for determining a loss (similar to the former Group Risk Plan, or GRP). When the county yield for the insured crop falls below the trigger level chosen by the farmer, an indemnity is paid. Yield coverage is available for up to 90 percent of the expected county yield. ARPI premiums are usually lower than those for individual insurance, but an individual farmer's crop loss may not be completely covered if the county yield does not suffer a similar level of loss. This type of insurance is best suited to farmers whose crop losses typically follow the county pattern.
- Dollar Plan coverage pays for both quantity and quality yield losses and is limited to some high-value crops (e.g., fresh market tomatoes and strawberries). It guarantees a dollar amount per acre rather than a particular yield level.
Revenue Insurance Plans
- Revenue Protection (RP) provides protection against a farmer’s gross revenue (i.e., price times yield) falling below some guaranteed level. Guaranteed revenue is equal to the farmer’s elected coverage level (50 to 85 percent), times the APH yield, times the higher of (a) the base market price, which is an average of the harvest-time futures price for a month prior to planting; or (b) the month-long harvest market price for the last month of the contract.
- When a farmer’s actual revenue (calculated as realized yield times the harvest market price) is below the guaranteed revenue, RP pays an indemnity equal to the difference between those two amounts.
- Farmers can choose between RP’s standard option, where the revenue guarantee is determined using either the higher of the preplanting price or the harvest price, or the “harvest price exclusion” option where the revenue guarantee is determined using only the preplanting price. The second option, called the revenue protection with harvest price exclusion (RP-HPE) policy, carries a lower premium.
- A version of the Area Risk Protection Insurance (ARPI) uses county yields instead of farm yields when calculating revenue coverage levels and actual revenue (similar to the former Group Risk Income Protection plan of insurance, or GRIP). Farmers may select revenue coverage levels from 70 to 90 percent of expected county revenue, where county revenue is equal to the historic county yield times the relevant futures price prior to planting. Actual county revenue is calculated as the actual county yield times a month-long average of the nearby futures price at harvest time. ARPI pays indemnities only when the average county revenue for the insured crop falls below the revenue chosen by the farmer.
- Adjusted Gross Revenue (AGR) coverage insures the revenue of the entire farm rather than an individual crop by guaranteeing a percentage of average gross farm revenue, including a small amount of livestock revenue. The plan uses information from a producer's Schedule F tax forms to calculate the policy revenue guarantee. AGR is a pilot program that is only available in selected areas. AGR Lite is similar to AGR but allows a greater share of insured income to come from livestock enterprises and has a lower maximum limit of the insured amount. Both programs are being merged into a single insurance plan, Whole Farm Revenue Protection, for the 2015 crop year.
- USDA, Farm Service Agency Farm Bill Fact Sheet provides details of programs administered by the Farm Service Agency, including Title I crop commodity programs.
- USDA, Risk Management Agency Farm Bill 2014 FAQ provides Q&A’s on programs administered by the Risk Management Agency, including Title XI crop insurance programs.