Crop Insurance:

Inaccurate FCIC Price Forecasts Increase Program Costs

PEMD-92-4: Published: Dec 13, 1991. Publicly Released: Jan 21, 1992.

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Pursuant to a congressional request, GAO examined the accuracy of the Federal Crop Insurance Corporation's (FCIC) independent price surveys, focusing on how: (1) inaccuracies in the forecast affect FCIC program costs; and (2) FCIC can improve its forecast accuracy.

GAO found that: (1) bias errors showed that FCIC forecasts for corn and wheat overestimated actual prices by an average of 10 percent and 6 percent, respectively, and underestimated actual prices for soybeans by about 2 percent; (2) during crop years 1983 through 1989, FCIC final price forecasts for wheat and corn were less accurate than alternative benchmarks with respect to bias error measures; (3) if FCIC had used the World Agricultural Outlook Board's (WAOB) forecasts for crop years during fiscal year (FY) 1983 to FY 1989, it could have saved $194 million in program costs, since WAOB forecasts were more accurate than the FCIC forecast; (4) FCIC could have incurred $54 million in additional costs if it had used its future market forecasts for crop years FY 1983 to FY 1989; (5) if FCIC had used the forecast recommended by the Actuarial and Underwriting Service for crop years during FY 1983 to FY 1989, it could have saved $167 million in program costs; (6) FCIC forecasting lacks an effective management process to identify sources of forecasting error, maintain data records, and document and validate forecasting methods; and (7) FCIC could save up to 5 percent of its program costs if FCIC deducted the harvest costs lost by farmers.

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