If you enroll in a farm program, such as ACRE, and then go to your crop insurance agent and sign up for crop insurance, and then if a disaster happens go back to the FSA office and apply for the SURE permanent disaster program are you guilty of fraud because of the overlapping programs? Or are you just taking advantage of the programs offered by USDA? In a new report on the overlapping of farm safety net programs, the USDA’s economists indicate that the General Accounting Office has investigated potential fraud among overlapping programs, but found little evidence of such abuse. Nevertheless, the new Farm Bill may slice the programs in a way to reduce the likelihood of future overlap.
ACRE was a good indication of the complexity of farm programs. And the lack of participation was an indication that complexity was a detriment to the success of the programs. The lack of being able to understand how ACRE benefits were calculated may have lead many more farmers to offset their potential production and revenue risk by signing up for crop insurance. But if farmers had signed up for both, would they have been able to obtain benefits from both programs? And many farmers will remember that to collect from the SURE program, crop insurance was a requirement.
With the recent Congressional discussion about development of a farm program within a budgetary restriction, the issue of overlapping payments arose, and the Economics Research Service evaluated the potential for overlapping programs and what programs compensated for the same loss. ERS reports, “For example, if the ACRE payment was integrated into a revenue-based crop insurance program to eliminate overlap between the two programs, premiums could decrease between 20% and 38% for a State-level ACRE program, depending on the farm/crop combination explored.” It might seem to be a simple task to see where overlap occurs, but many programs are built around different concepts. ERS identifies those as:
1) Price support programs, used only for dairy and sugar, maintain domestic market prices above world market prices and therefore do not involve government payments provided directly to producers.
2) Income support programs include both programs tied to the production of specific crops and those that allow producers to make production decisions independent of their payment receipts.
3) Risk management programs include both commodity-specific insurance—which can protect against price, yield, or revenue losses—and whole-farm revenue protection.
The economists say that because programs are different, producers can be expected to participate in multiple programs. Using Iowa, Kansas, and Texas as examples, the economists report “Producers on these farms can receive both DCP payments for historical crop base along with payments for current production that may provide price protection, short-term credit, and coverage for crop and/or livestock losses.” And they add, “While program payment data show that farmers can, and often do, receive support from multiple sources, this in itself does not indicate the existence of overlapping payments within the farm safety net. Identifying overlap requires consensus definitions of overlap, accurate understanding of the interactions among programs, and a means to measure the level of any potential overlap.”
With the arrival of ACRE and SURE in the 2008 Farm Bill, both of which insured revenue, the potential existed for them to interact with each other and with crop insurance to provide overlapping payments. The USDA economists report that Iowa State University economist Bruce Babcock testified to Congress that the ACRE and SURE had a $4 billion overlap. Ohio State University economist Carl Zulauf estimated, “because the ACRE State trigger operates at 90 percent of recent State revenues, the farmer should be insured for up to 90 percent of his losses. Furthermore, since ACRE payments are limited to 25 percent of the cap (the 90 percent), ACRE only protects the individual farmer from revenue losses between 67.5 (90 - 25 percent of 90) and 90 percent of the farm guaranteed revenue. In other words, ACRE does not cover any losses of revenues that fall below 67.5 percent of expected revenues.” The ERS economists suggested that a farmer with a loss that triggered the 70% coverage insurance policy, there would be 2.5% overlap between the insurance policy and his ACRE program.
Another analysis looked at the impact of the ACRE program on crop insurance and found that crop insurance premiums paid by farmers could decrease anywhere from 10 to 41% if they enrolled in ACRE. Another study analyzed corn, soybean, and wheat farms in Illinois, Minnesota, and South Dakota and found that crop insurance premiums would drop 6 to 29% for a national-level ACRE program, between 20 and 38% for a state level ACRE program, and from 29 to 45% for a county-level ACRE program.
The USDA economists also looked at the SURE disaster program, and compared it to crop insurance. However, they adjusted the premiums for crop insurance to make them “actuarially fair” and reported the demand for insurance would be reduced about 65% with the implementation of the SURE program.
The Economics Research Service found that ACRE, SURE, and crop insurance all have some degree of overlap, and farmers are able to obtain dual benefits if participating in more than one program. While there is no apparent intention of fraud, some farmers may make cropping decisions based on farm program benefits.