September 29, 2009

The US Department of Agriculture wants to spend less on the federal crop insurance programme while at the same time spurring government-subsidized insurers to cover a wider range of farmers, according to USDA officials.

 

Congress authorized the USDA last year in the 2008 farm bill to make significant changes with an eye towards cutting back government spending, but officials, like Bill Murphy, USDA's Risk Management Agency administrator, stressed that improvements can also be made to help farmers with little or no access to crop insurance.

 

Murphy, USDA Undersecretary Jim Miller and other officials sat down with reporters this week to provide an update on the progress of their reform efforts. They said they want to get the job done next year so all new programme contracts will be ready for insurers in time for the 2011 fiscal year, which begins Oct. 1, 2010.

 

One of the biggest targets for government spending cuts are the payments made to private insurance companies for their administrative and operating, or A&O, expenses, but Murphy and Miller said they have not settled on any specific remedies.

 

The USDA spent US$6.5 billion last year to run the federal crop insurance programme, of which US$2 billion went for A&O expenses, according to report released in April by the US Government Accountability Office, or GAO.

 

The report concluded that A&O payments have been wildly inflated in 2008 and 2009 because the USDA calculates them by considering "the value of the crop, rather than the crop insurance industry's actual expenses for selling and servicing policies.

 

But Miller said the USDA will be depending heavily on crop insurance companies to come up with specific proposals.

 

"These are negotiations," he said.

 

Cutting costs is not the only objective of the negotiations. Murphy stressed that the companies have been tasked with coming up with ways to break up the concentration of coverage in the Midwest that often leaves farmers in remote area of the country under-insured.

 

Farmers in Alaska, Nevada and some of the New England States don't have nearly enough access to crop insurance agents, Murphy said. "We have certain areas that are considered under-served."

 

But above all, Murphy said, farmers should not see any increases in what they pay to insure their crops.

 

"Ideally, farmers would see no impact on the cost of the programme," he said.

 

USDA is now waiting on the 15 insurance companies participating in the federal programme to present their proposals for reform. Once the USDA gets those, Murphy said, negotiations will heat up.

 

It will be a "balancing act," Miller said, weighing on one side the government's goals for reform and making sure that the 15 companies can still turn a decent profit.

 

"They do have to have at least some expectation that they are going to make a reasonable return," Miller said.

 

There is a very limited time for negotiations, Murphy said, because another USDA goal is to finish the first draft of the proposal for all of the changes it wants to make by December.

 

"If we're going to have a new agreement for 2011, then they must be signed by July 1, 2010," Miller said. "If we're going to cancel the current agreement and implement a new one...we have to provide the companies notification by December 2009".