As Congress and agriculture prepare for a new farm bill, it appears the primary safety net will be the crop insurance program.  Twenty years ago, only 20% of farmers used it, but today only 20% are not using it, which is a function of greater opportunities for indemnity payments.  But in the wake of getting farmers to use crop insurance to manage their production and revenue risk, the tool has become a club to threaten farmers with penalties, should farmers misbehave.

While the General Accounting Office is urging Congress to put a $40,000 cap on crop insurance indemnity benefits, ironically Congress may use the program as a club to enforce compliance with conservation requirements.  With the demise of direct payments, counter cyclical payments, ACRE payments, and SURE disaster payments, the only benefit left is a crop insurance check, should your crops be destroyed.  But Congress also is forcing farmers and landowners to observe soil conservation requirements and practices or the large payment for crop insurance would not be received, no matter how hard the wind blew. 

Agriculture program analyst Megan Stubbs works for the Congressional Research Service, and analyzed the impact if crop insurance payments were withheld from farm owners and operators who violated conservation requirements.  She said currently the reduction in soil erosion continues, but progress is slower now than it was after the implementation of the 1985 Farm Bill when the CRP and other programs were put in place.  She says, “The leveling off of erosion reductions leaves broad policy questions related to conservation compliance, including whether an acceptable level of soil erosion on cropland has been achieved; whether additional reductions could be achieved, and if so, at what cost; and how federal farm policy should encourage additional reductions in erosion.”

Detailing the Sodbuster, Swampbuster, and Sodsaver programs, Stubbs says conservation compliance applies to most farm program benefits, including the marketing loan program which may be the only benefit holdover into the next Farm Bill, along with crop insurance. Producers will be denied any conservation incentives, if they are out of compliance with program rules, but under a consideration of some members of Congress, crop insurance would also be denied, even though premiums had been paid.

Stubbs says conservation advocates worry that without direct payments, farmers would have little incentive to comply with conservation requirements, and they suggested the crop insurance linkage.  However, opposing the concept is farm organizations and the crop insurance industry who said they have worked hard to gain voluntary compliance and do not want to see it changed into a penalty.  She says USDA’s “Economics Research Service has determined that if crop insurance became the benefit that could be lost for non-compliance with conservation issues, the incentive for compliance would vary depending on location.” In the northern plains it would be an even larger incentive than direct payments, but in the Mississippi Delta there would be less of an incentive.

Is soil erosion serious enough to require a program with benefits that could be withheld for non-compliance? USDA’s Natural Resources and Conservation Service says during its 2007 soil inventory, 99 million acres or 28% of all cropland is eroding above tolerable rates (T).  That is an improvement from 1982, when it was 169 million acres or 40% of cropland.  NRCS says, “Compliance provisions could be responsible for approximately 295 million tons, or 25% of the 1.2 billion ton reduction in cropland soil erosion that occurred between 1982 and 1997.” 

As Congress prepares to remove farm program benefits, it loses any potential penalty for not complying with conservation program requirements.  The focus turns to crop insurance, which most farmers may utilize, but not necessarily all who have highly erodible soils.  While threats of withholding crop insurance indemnities, in return for conservation compliance may not be a perfect penalty, it may be all that Congress may have.

Source: FarmGate blog