Cotton growers considering purchasing crop insurance should familiarize themselves with several changes that are scheduled to take effect beginning with the 2002 crop.
The changes will mean higher premium prices for some growers and lower costs for others, depending on where they live and what type of coverage they select.
According to Kent Lanclos, assistant director of economic services for the National Cotton Council in Washington, D.C., the maximum rate increase or decrease for 2002 in any county is 10 percent. Many counties in the Southwest region will see rate increases of 5 to 10 percent while some counties in the Southeast will see reductions of a similar amount. Other areas of the Cotton Belt were determined to need no rate adjustment.
“In general, rate adjustments are made annually for each county/crop combination to achieve compliance with the target loss-ratio,” he said.
The multi-peril crop insurance price election for cotton for 2002 is likely to be substantially lower than it was in 2001, with the price set at 50 cents per pound for all regions of the Cotton Belt pending additional direction from Congress. The 2002 cotton price election was set at 63 cents per pound.
“The Risk Management Agency (RMA) has informed the National Cotton Council that the price election for 2002 will be lower due to market prices,” Lanclos said. “With the uncertainty regarding a new farm bill for 2002 though, RMA has waived the traditional Jan. 15 deadline for announcing additional price elections and, if appropriate, will announce the additional price elections no later than July 1, 2002.
Also in 2002, the Federal Risk Management Agency is updating T-yields for spring 2002 crops, based on the National Agricultural Statistics Service's county-level crop data from 1991 to 2000.
The T-yields (10-year average county cotton yield per planted acre) are generally used to establish a producer's actual production history (APH) yield in those cases when a producer can't provide at least four years of production records.
Under the Agricultural Risk Protection Act of 2000, if an insured's actual yield is less than 60 percent of the county transitional yield, or T-yield, then that producer may replace his actual yield with 60 percent of the T-yield for insurance purposes.
The Agricultural Risk Protection Act (ARPA) also mandated that crop insurance premium rates be based on the producer's APH yield prior to adjustment, and not on his revised APH yield using 60 percent of the T-bill. What this does essentially is to provide the producer a better APH, but it doesn't help reduce the premium rate charged.
According to Lanclos, the National Cotton Council requested that the Risk Management Agency allow for some type of exceptions for those areas that have experienced extended periods of adverse weather. However, no such changes to the updated T-yields were made. NCC sought to mitigate impacts more than it sought exceptions.
Another change that was made for the 2002 cotton season, was a shortening of the time allowed for planting in most areas of the Cotton Belt.
“The late planting period begins the day after the final planting date for the insured crop and will now end 15 days after the final planting date for all regions of the Cotton Belt. The 15-day period was previously implemented for cotton growers in Texas, Oklahoma, and New Mexico, but is a reduction from 25 days for other Cotton Belt regions,” Lanclos said. “For each day cotton is planted beyond the final planting date, the production guarantee will be reduced by 1 percent.”
The Federal Risk Management Agency has also indicated that it will more strictly enforce the small grain provision of the crop insurance program.
Under this provision cotton is uninsurable on acreage for which a small grain crop reached the headed stage in the same calendar year unless the acreage is irrigated or adequate measures are taken to terminate the small grain crop prior to reaching the “50 percent headed” state.
In order for the cotton to be insurable, producers would have had to terminate the small grain crop with herbicides or undercutting sweeps prior to 50 percent of the crop reaching the heading stage. Acreage on which the producer continues to graze the small grain after reaching the 50 percent heading stage will not be insurable, according to Lanclos.
The Agricultural Risk Protection Act of 2000 (ARPA) made several other changes to the crop insurance program beginning in 2001. The $8.2 billion landmark legislation will make improvements in both the functions and costs of the crop insurance program over a five-year period.
“One of the primary things that ARPA did was made buy-up coverage more affordable. Premium subsidies were increased to the farmer at all levels of coverage, and the farmer subsidy was equalized for the revenue products,” said Lanclos.
Also included in the legislation are provisions designed to reduce fraud, waste and abuse of the crop insurance program.
According to Lanclos, a concerted effort will be made to identify any producers, agents, or loss adjusters suspected of abusing the program. “ARPA also mandated that any policy or insurance plan revisions must go through a panel of outside reviewers. This is good because we're getting new blood and new eyes on these insurance products. The only bad thing is that it slows the process down. That's the trade-off,” he said.
Also included in the legislation is a $110 million allocation to study under-served areas, under-served crops, multi-year coverage programs, revenue insurance, the cost of production insurance, and new risk management tools. Another $65 million will reimburse companies for the development of new insurance products.
What this $65 million does is pay private insurance companies for the development and maintenance of products like Crop Revenue Coverage. It also pays companies a maintenance fee for four years, at the end of which time, they have the choice of either turning these private products over to the Risk Management Agency, or keeping the products private, and charging other companies a user fee for the use of these products.