The crop-insurance industry and the agents who produce for itwill be prime beneficiaries of a new five-year farm reauthorizationbill now working its way through Congress.

Legislation now being debated by a Senate-House panelreconciling differing bills contains a provision establishing a newprogram to cover “shallow losses,” or losses incurred by farmersbut not covered currently by crop insurance.

The four key members of the panel could meet as early asThursday and a final bill could be completed by the end of January,according to industry lobbyists and congressional staffers.

The Supplemental Coverage Option (SCO) would be available for asan additional policy to cover part of the deductible under the cropproducer's underlying policy.

R.J. Lehmann, a senior fellow at the R Street Institute, saysthe SCO would cover up to 90 percent of a farmer's crop revenuewhen elected in combination with a conventional crop-insurancepolicy.

Among the issues the reconciliation panel must deal with is thatthe cost of the SCO provision under the House bill would be $3.85billion over the next decade, compared to $2.25 billion in theSenate bill.

The SCO provision was first introduced in the last Congress asthe CROP Act by Rep. Randy Neugebauer, R-Texas, a key member of theHouse Financial Services Committee.

A spokesperson for Neugebauer says, “It's not accurate tosay it raises the subsidy program.” She says farm subsidies includeTitle I provisions like direct payments—which the new bill seeks tosubstantively reduce—price-loss coverage, revenue-loss coverage,etc.

“The goal is to move to a more market-based, shared-risk programthat only pays out in the event of a loss,” says the Neugebauerspokesperson, Heather Vaughn, who formerly was a staffer at theHouse Ag Committee.

But the provision does have its critics. Bruce Babcock, aprofessor in the Agriculture Department at Iowa State University,argues that, because SCO takes on the same type of coverage as theunderlying coverage, it will lead to overpayment of farmlosses.

He says, “If the coverage were limited to pure revenue insurancecoverage and if the group plan were to cover deep losses, then theprogram would not just be another unneeded subsidy but rather animprovement in how risk-management subsidies are provided tofarmers. But, alas, it is neither so I would characterize it asjust another unneeded subsidy.”

Babcock adds, “It has the potential” to be helpful in managingfarm risk if reworked.

At the same time, coverage of crop losses incurred by cottonproducers will be covered by the crop-insurance program, instead ofcurrent policies which pay for losses by cotton farmers on adirectly subsidized basis. Under existing law, cotton wasdesignated a “commodity,” with the government directly subsidizingcotton producers, according to David Graves, manager for theAmerican Association of Crop Insurers.

He estimates the arrangement under the new bill would bring $2.5billion in crops into the insurance program. “A farmer may verywell wind up buying more insurance,” he added.

In total, the changes will mean that “direct payments to farmersare going by the wayside in the next farm bill and that the FederalCrop Insurance Program (FCIP) will be the centerpiecerisk-management tool for farmers,” says Jennifer McPhillips, seniordirector of federal government affairs for the IndependentInsurance Agents and Brokers of America.

She says, “This is not to the detriment of taxpayers, but infact the opposite. The FCIP is actuarially sound, but it relies ona broad pool of participants to function correctly. Insurance isall about participation as well as the ability to spread the riskto the largest possible number of policyholders, most of whom willnever have a claim. Strong participation in the FCIP, coupled withthe ability for farmers to buy up coverage, further strengthens thebaseline of this program.”

For producers certified to sell crop insurance, Graves believesit will mean more work in terms of training staff and selling andservicing policies. While compensation for the extra effort is “notalways automatic,” Graves says the supplementary coverage option“will bring new revenue to the program to help defray costs.”

He adds, “The farmers will also have to pay premiums for thosenew policies, which brings additional revenue to the table. When welook back on this in 10 years, we will see this bill as anotherlandmark development in the federal crop-insurance program,” Gravessaid.

The Wall Street Journal estimates that, under the newsystem, the federal government will subsidize 65 percent ofpremiums, as opposed to the nearly 63 percent it is currentlysubsidizing.