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Final draft rule for crop insurance SRA

The USDA Risk Management Agency released the final draft version of a new Standard Reinsurance Agreement for federal crop insurance. The final draft agreement will generally maintain the current Administrative and Operating (A&O) subsidy structure, but remove the possibility of windfall government payments based on high commodity price spikes by limiting the level of A&O payments that the industry can receive. However, an inflation factor and consideration for new business is included so that the maximum payment may reasonably increase over the length of the agreement.

The deal also lowers the projected average long-term return for companies from the current 17 percent to about 14.5 percent. However RMA will increase the return in historically underserved states as an extra incentive for companies to write business there. The agency also returned to individual state stop-loss protection for the more risky business providing greater reinsurance protection for companies.

The plan is projected to save $6 billion over a ten-year period, $2 billion of that will be used to strengthen successful targeted risk management and conservation programs including expansion of the Pasture, Rangeland, and Forage program; providing a performance discount or refund, which will reduce the cost of crop insurance for certain producers; increasing Conservation Reserve Program (CRP) acreage to the maximum authorized level; investing in new and amended Conservation Reserve Enhancement Program initiatives; and investing in CRP monitoring. The remaining $4 billion saved will go toward reducing the federal debt.

The 2008 Farm Bill authorized the Risk Management Agency to renegotiate the agreement for the 2011 crop year. Due to significant increases in commodity prices in recent years, annual insurance industry payments more than doubled from $1.8 billion in 2006 to an estimated $3.8 billion in 2009.

“The Federal crop insurance program is a critical component of the farm safety net, and now that our negotiations are complete, we have the framework for a stronger program that will help producers in every region of the country better manage their risk,” said Agriculture Secretary Tom Vilsack. “The President has laid out an aggressive plan for reducing the deficit and we’re pleased to take a leadership role in that effort with today’s announcement while strengthening key risk management and conservation programs that benefit America’s farmers and ranchers.”

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