Crop Insurance Program Provisions

The Agriculture Improvement Act of 2018 (2018 Farm Bill) made very few changes to the crop insurance program. The most significant change was the authorization of crop insurance policies for industrial hemp crops.

Both yield and revenue coverage, as well as whole-farm coverage and livestock coverage, continue under the 2018 Farm Bill. Federal crop insurance is authorized by the Agricultural Risk Protection Act of 2000 as amended. Available policies may be modified or expanded, and new policies added, under the authority of the Federal Crop Insurance Corporation.

Both the Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX) (established under the 2014 Farm Bill) continue under the 2018 Farm Bill, although neither has been widely adopted.

Producers who elect to enroll base acres in the Agriculture Risk Coverage (ARC) program cannot also purchase SCO for the same crop on the same farm. STAX is available only to upland cotton producers, who may also purchase SCO policies, but not for the same acres they have covered with STAX. Producers who enroll seed cotton base acres on a given farm under the Price Loss Coverage (PLC) or ARC programs are not eligible to purchase STAX for any upland cotton acres on that farm.

Benefits under the Federal crop insurance program are not subject to the eligibility and payment limitations that govern Title I crop commodity programs.

Traditional Crop Insurance

Producers can purchase insurance policies at a subsidized rate under Federal crop insurance programs. These insurance policies make indemnity payments to producers based on current losses related to either below-average yields (crop yield insurance) or below-average revenue (revenue insurance).

Policies are sold through private insurance companies under a Standard Reinsurance Agreement (SRA). USDA's Risk Management Agency (RMA) subsidizes the insurance premiums, as well as a portion of the companies' administrative and operating expenses, and shares underwriting gains and losses with the companies. Premium subsidy rates have increased for a number of policy types in recent decades, so on average producers pay only around 40 percent of their premiums. Crop insurance is available for more than 100 commodities, including some animals and animal products. However, coverage is not available for all commodities in all areas, and all types of insurance are not available for all commodities. On crop policies, farmers sign up for insurance before planting, but usually pay premiums after harvest.

Several types of crop yield and revenue insurance and livestock insurance plans are available:

Yield Insurance Plans

• Yield insurance plans are the oldest and most widely available crop insurance product. Actual Production History (APH) and Yield Protection (YP) policies protect farmers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. APH and YP products differ only on the basis that YP policies use futures contracts to determine projected prices while APH policies do not.
• Yield coverage levels are based on a producer's expected yield, which is calculated from the farm's actual production history (average yields over the last 4 to 10 years). The farmer selects a yield-coverage level, which can range from 50 to 75 percent of average yield (up to 85 percent in some areas), and an indemnity price. The selected price can range from 60 to 100 percent of the crop price established annually by RMA. If the harvested yield is less than the insured yield (i.e., expected yield times the coverage level), the farmer receives an indemnity based on the difference between the actual yield and the insured yield. The total indemnity equals this yield shortfall, times the indemnity price, times acres insured.
• Catastrophic Risk Protection Endorsement (CAT) coverage provides a lower level of coverage on yield losses at a low cost to producers. CAT pays indemnities at a rate of 55 percent of the established price of the commodity when farm yield losses are more than 50 percent. CAT premiums are paid by RMA, but producers must pay an administrative fee for each crop insured (these fees are waived for beginning farmers and for farmers who are members of groups designated as socially disadvantaged). The administrative fee charged to producers was raised under the 2018 Farm Act, from $300 to $655 per crop per county. CAT coverage is not available on all types of policies. Coverage above the CAT level is often referred to as "buy-up" coverage.
• A yield version of the Area Risk Protection Insurance (ARPI) policies uses county yields as the basis for determining a loss (similar to the former Group Risk Plan, or GRP). When the county yield for the insured crop falls below the trigger level chosen by the farmer, an indemnity is paid. Yield coverage is available for up to 90 percent of the expected county yield. ARPI premiums are usually lower than those for individual insurance, but an individual farmer's crop loss may not be completely covered if the county yield does not suffer a similar level of loss. This type of insurance is best suited to farmers whose crop losses typically follow the county pattern.
• Dollar Plan coverage pays for both quantity and quality yield losses and is limited to some high-value crops (e.g., fresh market tomatoes and strawberries). This coverage guarantees a dollar value per acre rather than a particular yield level.

Revenue Insurance Plans

• Revenue Protection (RP) provides protection against a farmer’s gross revenue (i.e., price times yield) falling below some guaranteed level. Guaranteed revenue is equal to the farmer’s elected coverage level (50 to 85 percent), times the APH yield, times the higher of (a) the base market price, which is an average of the harvest-time futures price for a month prior to planting; or (b) the month-long harvest market price for the last month of the contract.
• When a farmer’s actual revenue (calculated as realized yield times the harvest market price) is below the guaranteed revenue, RP pays an indemnity equal to the difference between those two amounts.
• Farmers can choose between RP’s standard option, where the revenue guarantee is determined using either the higher of the preplanting price or the harvest price, or the “harvest price exclusion” option where the revenue guarantee is determined using only the preplanting price. The second option, called the Revenue Protection with Harvest Price Exclusion (RP-HPE) policy, carries a lower premium.
• A revenue version of the ARPI uses county yields instead of farm yields when calculating revenue coverage levels and actual revenue (similar to the former Group Risk Income Protection plan of insurance, or GRIP). Farmers may select revenue coverage levels from 70 to 90 percent of expected county revenue, where county revenue is equal to the historic county yield times the relevant futures price prior to planting. Actual county revenue is calculated as the actual county yield times a month-long average of the nearby futures price at harvest time. ARPI pays indemnities only when the average county revenue for the insured crop falls below the revenue chosen by the farmer.
• Whole Farm Revenue Protection, which replaced Adjusted Gross Revenue (AGR) and AGR Lite coverage in 2015, insures the revenue for all commodities on the farm under one policy. The plan is tailored for farms with up to $17 million in insured revenue, including farms with specialty or organic commodities (both crops and livestock)—or those marketing to local, regional, farm-identity preserved, specialty, or direct markets. The share of revenue from livestock and livestock products and from greenhouse and nursery crops is limited to $2 million each. The plan uses information from a producer’s Schedule F tax forms to calculate the policy revenue guarantee.

Supplemental Coverage Option (SCO)

• The SCO offers producers the opportunity to purchase area-based insurance coverage in combination with traditional crop insurance policies. Producers may cover a portion of the deductible of their underlying crop insurance policy (yield or revenue), with payments being determined on an area (generally county) basis. The more closely an individual producer’s yields vary in step with the county average, the better the program will cover individual farm losses. While some traditional insurance policies can cover up to 85 percent of farm-level revenue or yield, producers typically insure for around 70-75 percent of yield or revenue. SCO policies provide an option for additional coverage of the layer of crop value between the coverage level of the underlying insurance policy and 86 percent, at a fixed premium subsidy rate of 65 percent.

Stacked Income Protection Plan (STAX)

• STAX provides revenue insurance policies to producers of upland cotton. Similar to SCO, STAX policies are area policies, basing the loss calculation on the difference between expected and actual area average revenues rather than on individual farm losses. Unlike SCO--which must be purchased in conjunction with a traditional crop insurance policy, cotton producers may purchase STAX either in conjunction with their insurance policies or as stand-alone policies. Policies may cover up to 20 percent of revenue in 5-percent increments. Federal subsidies will cover 80 percent of producers’ premiums. Producers who enroll seed cotton base acres on a farm under ARC or PLC may not purchase STAX policies for any upland cotton acres on that farm.

Index Insurance Products

• The Hurricane Insurance Protection—Wind Index (HIP-WI) Endorsement—introduced in early 2020, covers a portion of the deductible of a producer’s underlying crop insurance policy when the county, or a county adjacent to it, is within the area of sustained hurricane-force winds from a named hurricane. HIP-WI coverage can be combined with SCO policies and with STAX policies that are not stand-alone. The HIP-WI Endorsement provides coverage for 70 different crops and is available in counties in the vicinity of the Gulf of Mexico and the Atlantic Ocean, as well as Hawaii.
• Pasture, Rangeland, Forage (PRF) Insurance—available in the 48 contiguous states since 2016—provides coverage on pasture, rangeland, or forage acres based on a Rainfall Index rather than actual losses. The Rainfall Index uses the grid system developed by the National Oceanic and Atmospheric Administration Climate Prediction Center (NOAA CPC) to determine precipitation amounts within an area. Insured acres are assigned to one or more of these NOAA grids based on their location. PRF coverage is designed to help protect a producer’s operation from the risks of forage loss due to the lack of expected precipitation during specific intervals, not to insure against ongoing or severe drought.

Livestock Insurance Plans

RMA offers several different types of insurance coverage for livestock:

• Livestock Gross Margin policies provide protection against declines in the margin between feed costs and the market value of livestock and are available for dairy, cattle, and swine.
• Livestock Risk Protection policies provide protection against declines in market prices of insured livestock and are available for cattle, swine, and lamb.
• Dairy Revenue Protection provides protection against a decline in revenue resulting from reduced yield or price on milk produced.