The Federal Crop Insurance Program Can Be Made More Effective

FOD-77-7: Published: Dec 13, 1977. Publicly Released: Dec 13, 1977.

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Federal crop insurance indemnities would provide little economic relief to the Nation's agricultural producers in the event of widespread crop failures. A major change in basic program objectives is necessary if the Federal Crop Insurance Corporation's (FCIC) insurance program is to attain widespread acceptance.

Under the current program, production guarantees and basic premium rates are set on a county or areawide basis. In crop year 1974, FCIC provided about $1.2 billion of protection on agricultural crops, while a total of $40.1 billion was derived from agricultural crop sales. When adverse weather conditions caused widespread damage in 1974, producers suffered production losses on five major crops valued at $6.9 billion, of which an estimated $420 was incurred by insured farmers. FCIC paid insured producers about 12 percent of the estimated value of their lost production. The federal crop insurance program has not attained the high degree of national acceptance and participation from agricultural producers essential to a sound insurance program. Because FCIC sets production guarantees and basic premium rates for most crops on the basis of the estimated productive capability of land areas and countywide loss history, production guarantees and rates are too high for some producers and too low for others. Establishing the same production guarantee for all producers in the area encourages greater participation by those producers whose average yield is at or below the average yield of the group.

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