Congressional Research Service Report: 'Federal Crop Insurance Program – Replanting, Delayed Planting & Prevented Planting' (Part 2 of 2)

WASHINGTON, Aug. 14 (TNSRep) -- The Congressional Research Service issued the following report (No. R46874) on Aug. 12, 2021, entitled "Federal Crop Insurance Program (FCIP): Replanting, Delayed Planting, and Prevented Planting":

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(Continued from Part 1 of 2)

Issues for Congress

Congress authorized FCIP replanting and prevented planting payments to help mitigate the financial losses caused by adverse weather and planting conditions, as well as to reduce the demand for ad hoc disaster assistance funding. However, Congress provided supplemental prevented planting payments in 2019 in response to the abnormally severe, widespread spring flooding that occurred that year. USDA's method of calculating replanting and prevented planting payments relies on projected crop prices, which may not provide the same degree of financial compensation for crop losses each year and across crops. A 2015 external examination of prevented planting coverage commissioned by USDA considered multiple approaches for ensuring consistent relationships between prevented planting payments and pre-planting costs but noted the challenges faced by USDA in establishing prevented planting payments that do not exceed actual costs incurred by farmers while providing loss coverage perceived as reasonable by farmers./44

One option Congress could consider would be to establish explicit goals for loss coverage for replanting and prevented planting payments to ensure that these payments provide a consistent amount of cost reimbursement across crops and on a year-to-year basis. Congress could also consider whether the portion of the risk of financial loss that falls to farmers from replanting and prevented planting is at an appropriate level to reduce the potential for moral hazard associated with these payments./45

Congress could also consider whether proposals to reduce expenditures on prevented planting payments as a means of lowering the total cost of the FCIP would strike the right public policy balance between its objectives for the program and its cost to taxpayers. For example, the President's budgets for FY2016 and FY2017 included proposals to eliminate buy-up coverage for prevented planting and to assign a 60% yield for the year to any acres that received prevented planting payments. The proposals were expected to save $1.1 billion over 10 years. Other proposals to reduce expenditures on prevented planting payments include further limiting the number of consecutive years for which a farmer can file for prevented planting coverage, requiring a successful harvest more frequently than one in four years to qualify for prevented planting coverage, and providing prevented planting coverage as an unsubsidized, stand-alone policy option./46

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44 Agralytica Consulting, Evaluation of Prevented Planting Program , 2015, at https://www.rma.usda.gov/-/media/ RMA/Publications/ppevaluation-Jan-2015.ashx?la=en.

45 For additional information on moral hazard in prevented planting payments, see Zulauf et al., "Prevent Plant as Land Diversion Policy," farmdoc daily (9): 119, at https://farmdocdaily.illinois.edu/2019/06/prevent-plant-as-land-diversionpolicy.html.

46 For example, see National Sustainable Agriculture Coalition, "A Small Step Toward Crop Insurance Modernization: Modifying the Prevented Planting Policy," December 13, 2017, at https://sustainableagriculture.net/blog/preventedplanting-update-2017/; and Environmental Working Group (EWG), Boondoggle: "Prevented Planting" Insurance Plows up Wetlands, Wastes $Billions, April 28, 2015, at https://www.ewg.org/research/boondoggle.

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For their part, farmers rely on FCIP coverage to help manage their farm financial risk and in recent testimony before Congress, stated their opposition to FCIP reforms that would reduce the amount of risk coverage available from FCIP policies./47

In addition, Congress could consider how FCIP replanting and prevented planting provisions align with its goals for incentivizing farmers to engage in agricultural conservation practices and participate in such programs. The following are examples:

* USDA's Inspector General found that in some years and locations, the prevented planting payment might exceed per-acre payments available from conservation programs such as the Conservation Reserve Program, which removes environmentally sensitive land from production./48 The inspector general concluded that prevented planting payments could be disincentivizing some producers from enrolling cropland in the Conservation Reserve Program in certain areas.

* The Environmental Working Group, a major environmental interest group, has suggested that the one-in-four-year harvest requirement incentivizes farmers to cultivate seasonal wetlands./49 It is unclear what overall impact an expansion of the one-in-four requirement would have if applied on a national basis because prior to 2021, the requirement was limited to the Prairie Pothole region of North Dakota and South Dakota.

* Using the FCIP to incentivize the use of cover crops to promote conservation goals has received increased interest in recent years. For example, a bipartisan group of U.S. Senators introduced the Cover Crop Flexibility Act of 2021 (S. 1458 in the 117th Congress), which would remove the haying and grazing date restriction for cover crops on prevented planted acres and allow USDA to include the costs of planting cover crops in calculating prevented planting coverage factors./50 This bill could incentivize the use of cover crops by allowing farmers to collect the full amount of prevented planting indemnities and receive the financial benefits of allowing livestock to graze the land in the same season.

* Other ways that replanting and prevented planting coverage could be used to promote the use of cover crops include providing replanting payments for planting cover crops on acres deemed not practical to replant with a first crop or reducing prevented planting payments on acres not planted with cover crops. USDA's approach of providing additional crop insurance premium subsidies for acres planted to cover crops could provide incentives for farmers to plant cover crops provided that subsidies are announced sufficiently in advance of farmers planting decisions./51 However, it is an open question whether an additional $5 per acre in crop insurance premium subsidies, as some states have offered, would induce many farmers to adopt cover crops given the financial costs, technical constraints, and managerial burdens involved in adding cover crops into farmers' existing crop rotations./52

USDA's Inspector General has identified two additional issues that may be of interest for Congress in performing oversight of FCIP operations. First, the current rules on assigning yields for late plantings on replanted or prevented planted acres may deter farmers from planting a second crop. In the 2014 farm bill, Congress directed USDA to develop FCIP coverage that would allow producers to exclude certain years with severe county losses from calculations of future insurance guarantees. Congress could consider whether USDA may establish a similar type of yield exclusion coverage for years with delayed plantings.

Second, in 2013, the USDA Inspector General found that RMA was not holding private sector insurers accountable for properly establishing and documenting eligibility to receive prevented planting payments. The Inspector General found that RMA's guidance for determining whether acres were available for planting was impractical to implement and administer, and "too subjective for loss adjusters to apply in a uniform manner." Congress may wish to know what changes RMA has made to clarify the requirements for how private sector insurers should determine and document prevented planting eligibility, and how effective these changes have been in reducing opportunities for waste, fraud, and abuse in the FCIP prevented planting provisions.

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47 For example, see witness testimony in U.S. Congress, House Committee on Agriculture, Subcommittee on General Farm Commodities and Risk Management, A Hearing to Review the Efficacy of the Farm Safety Net, June 23, 2021.

48 USDA OIG, RMA: Controls over Prevented Planting, Audit Report 05601-001-31, September 2013. The Conservation Reserve Program allows farmers to reserve land for use in certain conservation activities in exchange for payments based on the agricultural rental value of the land. For additional information about this program, see CRS Report R42783, Conservation Reserve Program (CRP): Status and Issues.

49 The EWG has alleged that the "one in four" rule for prevented planting payments encourages growers to cultivate wetlands in the Prairie Pothole region of North and South Dakota; for more information, see EWG, Boondoggle: Prevented Planting Insurance Plows Up Wetlands, Wastes $Billions, April 2015, at https://www.ewg.org/research/ boondoggle. The EWG is an NGO focused on the interaction of federal policy, society, and the environment. The EWG website is at https://www.ewg.org/.

50 On July 6, 2020, USDA took administrative action to remove the haying and grazing date restriction for cover crops on prevented planting acres. This change applies to the 2021 and future crop years.

51 State pilot programs in Iowa, Illinois, and Indiana are also offering $5 per acre FCIP premium subsidy reductions for farmers planting cover crops on their land. For additional information, see Cleanwater Iowa, Crop Insurance Discount Program, at https://www.cleanwateriowa.org/cropinsurancediscount; Illinois Department of Agriculture, Cover Crops Premium Discount Program, at https://www2.illinois.gov/sites/agr/Resources/LandWater/Pages/Cover-CropsPremium-Discount-Program.aspx; and Indiana State Department of Agriculture, Cover Crop Premium Discount Program, at https://www.in.gov/isda/divisions/soil-conservation/cover-crop-premium-discount-program/.

52 For example, researchers estimate that Illinois corn and soybean producers would need to spend in the range of $10 to $28 per acre to establish a cover crop. See Swanson et al., "Understanding Budget Implications of Cover Crops," farmdoc daily (8):119, June 28, 2018, available at https://farmdocdaily.illinois.edu/2018/06/understanding-budget

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View report at https://crsreports.congress.gov/product/pdf/R/R46874