Recently, the AGree Economic and Environmental Risk Coalition (AGree E2 Coalition) released a new paper: The Case for Next Generation Crop Insurance. The comprehensive paper reviews mounting scientific evidence for the risk reduction benefits of agricultural conservation practices as well as policy barriers to broad adoption, before proposing recommendations to bring the federal crop insurance program in alignment with these practices.
Read the full paper here.
Crop Insurance Background
Farming is inherently a risky business. Weather, pests, variable costs for inputs, and wild fluctuations in market prices for farm products create a volatile business environment and can cause farm income to vary significantly from year to year. A healthy farm and food system depends on public policies that help farmers manage risk effectively.
Traditionally, farmers managed risk by growing multiple crops and raising a variety of livestock. If one crop failed or prices for cattle or hogs were low, then sales of other products would make up the difference. By contrast, current crop insurance policies are skewed in favor of less diverse crop production systems that are not only more vulnerable to markets, weather, and pests, but that also have serious environmental impacts.
Faced with wetter springs and drier, hotter summers across the country, increasing climate volatility and natural disasters (in addition to an already challenging farm economy driven by anti-competitive forces) are making it more difficult for farmers to stay in operation. Federal crop insurance has the potential to drive broader adoption of conservation practices that reduce risk and provide a host of economic and ecological co-benefits including, for example, sequestering carbon and improving water quality.
NSAC believes that a crop insurance program backed by the federal government is a necessary component of an effective farm safety net. At the same time, crop insurance should ensure that a farmer who experiences a significant price or yield loss can survive to farm the next year in an efficient, accountable, and transparent manner without removing so much risk that farmers are discouraged from exploring alternative production methods and crops and livestock products to enhance profitability and provide greater financial security long-term.
Read more about NSAC’s historical positions on crop insurance here.
AGree White Paper
Since 2015, the AGree E2 Coalition, to which NSAC belongs, has sought to better understand the risk reduction benefits of agricultural conservation practices and how these benefits are accounted for in the federal crop insurance program (FCIP).
This new white paper is a synthesis of the coalition’s work and publications in recent years. In it, AGree identifies three key areas where policy improvements can support the Risk Management Agency (RMA), which administers the FCIP, and drive the next generation of crop insurance to benefit farmers, the environment, and taxpayers. They are:
- Crop Insurance and Conservation Policy: Improve crop insurance and conservation policies so that they work better for farmers and reduce risk while adopting new policies that encourage adoption of conservation practices that reduce risk.
- FCIP Rating Model: Enable research that helps strengthen the FCIP risk rating model by addressing knowledge gaps, and utilize data to assess and improve on-the-ground outcomes.
- Data Innovation: Modernize data collection, interoperability, storage, and sharing while protecting producer privacy.
Crop Insurance and Conservation Policy
To begin, the paper explores policy impediments to conservation practice adoption, which sets the stage to share recommendations to encourage adoption of these practices through the FCIP. The most common policy barriers fall into three main categories:
- Policies that prevent or make adoption of conservation practices challenging;
- Lack of information regarding the compatibility of conservation practices with FCIP; and
- Lack of incentives to implement conservation practices in the first place.
Prior to the 2018 Farm Bill, farmers that planted cover crops (a proven conservation and resilience-building practice) faced the danger that an indemnity claim would be denied if they did not adhere to rigid USDA guidelines regarding cover crop termination or receive advanced approval for deviations. For many would-be cover crop adopters, this additional step was a major barrier and discouraged them from incorporating cover crops into their insured management systems out of fear of potentially jeopardizing their coverage and not wanting to jump through additional hoops.
NSAC recognized this barrier to broadening cover crop adoption, and worked with our members and partners to reduce cover crop termination barriers through the 2018 Farm Bill. The updated guidelines now clarify that rather than having to go through the approval process in advance, a cash crop can be insured at the time of planting, and cover crop management practices will be reviewed under the normal RMA rules for Good Farming Practice (GFP) determinations, which is similar to how other management decisions are reviewed for crop insurance purposes (e.g. fertilizer application, seeding rates, pest management, etc.).
The AGree paper recognizes this shift in policy as important for reducing impediments to cover crop adoption, but notes that the guidance needs to be refined and expanded by the Natural Resources Conservation Service (NRCS) so that the termination guidance can be used by innovative farmers without the need to go through the cumbersome GFP process.
The paper also notes that, despite this change, over a quarter of farmers in a recent survey expressed the belief that crop insurance is a barrier to cover crops, and 34.7 percent did not know whether or not crop insurance is a barrier.
The lack of knowledge among farmers regarding the compatibility of conservation practices with FCIP indicates the need for RMA and NRCS to “take an affirmative and coordinated outreach and education role to enhance awareness and understanding of the multiple benefits of cover crops.” This outreach and coordination must be supplemented by incentives to adopt risk-reducing conservation practices, such as an expansion of the Pandemic Cover Crop Program, but not limited to cover crops.
FCIP Rating Model
Despite growing evidence that conservation practices reduce risk, the AGree paper notes that the risk rating model used by RMA does not adequately recognize the risk-reduction benefits of soil type, conservation practice adoption, and other variables in the context of increased climate risk. Currently, RMA relies primarily on average historical yields (Actual Production History, or APH) and loss costs to determine baseline insurable yield levels and risk rates.
“In particular, there is a lag between when soil health improvements will affect yield variability and performance in reality versus when they will be reflected in the RMA risk assessment (actuarial data). In the case of APH, it could take years for the soil health improvements to be fully reflected. In the case of rates, since loss experience – the amount of loss an insured farm experiences – of producers using conservation practices are pooled with loss experience in fields not using conservation practices, rates may be biased against conservation practice relative to conventional practices.”
The paper highlights the important ability of third parties, including companies and NGOs, to propose new plans for insurance products that could be beneficial to producers through RMA’s 508(h) process. There are a number of projects underway, including AGree’s own Conservation and Crop Insurance Research Pilot, which may determine in what combination (“stacked”) conservation practices reduce risk, and could provide information for new insurance rating methodologies that explicitly consider conservation practices.
Data Innovation
AGree has been working for several years to address USDA’s data collection and utilization issues. The paper notes that while the 2018 Farm Bill included language that required USDA to assess and report on conservation datasets and the effects of conservation practices on farm and ranch productivity, USDA described limited authority to facilitate such extramural research.
This section of the paper then gives nods to pieces of legislation and ongoing USDA attempts to modernize data collection that may be suited to tackle these issues.
“Adopting industry standard data infrastructure, security protocols, and user permissions to security and confidentiality of producer data while automating and standardizing data collection, storage, and sharing are key to moving the USDA’s programs forward in a way that better serves farmers and accelerates climate smart agriculture.”
What’s next?
The recommendations above, in addition to foundational pieces of NSAC’s historical crop insurance campaigns, are built around the need to strengthen the connection between crop insurance and conservation.
Currently, the federal crop insurance program takes a very short-term (single year) view of risk management on the farm, which ignores longer-term strategies such as cover cropping and crop rotation that reduce risk to the farm and the program. Over time, the implementation of better conservation practices improves soil health, improves yields, and reduces yield variability, which reduces risk by boosting profitability and resilience. The reduced risk benefits both the farmer and the taxpayer by reducing the cost of the federal crop insurance program. Moreover, better aligning crop insurance with conservation generates climate co-benefits, as conservation and climate change mitigation and adaptation are inherently tied to efforts to limit risk and reduce crop loss.
The upcoming 2023 Farm Bill presents an opportunity for NSAC, alongside our members, partners, and champions, to align responsible conservation efforts with the federal crop insurance program. Removing barriers to the adoption of conservation practices and incentivizing this behavior will not only benefit our environment, but will ultimately strengthen the financial stability and resiliency of all farm businesses in the face of supply chain disruptions and growing climate threats.
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