Crop Insurance: Rate of Return Not Same as Net Profit – DTN

    The federal crop insurance program goal of a 14.5% targeted rate of return, which would be cut under a provision in the recently passed budget bill, is not the same as a net profit at the same level, the crop insurance industry said on Tuesday in a one-page explanation. Actual returns have been much less in recent years, according to the industry.

    The industry issued the document, along with a statement from National Crop Insurance Services President Tom Zacharias, as the Environmental Working Group released its own one-page analysis calling on Congress to move forward with a provision in the budget that would cut the rate of return to 8.9%.

    After congressional leaders and the Obama administration agreed to the provision, congressional leaders promised that it would not be used when appropriations bills are written.

    The proposal to cut the rate of return, which would generate $3 billion in federal budget savings over 10 years, was not part of President Barack Obama’s fiscal year 2016 budget, but Agriculture Secretary Tom Vilsack has said that the crop insurance program could still be cut somewhat and function properly.

    Releasing a new analysis Tuesday, EWG said, “Contrary to industry complaints, the companies that benefit from the heavily subsidized federal crop insurance program make huge profits, pay their top executives millions of dollars annually and can easily afford to pull in their belts.”

    In a statement, Zacharias said, “We are not at all surprised that EWG and its preferred researchers are criticizing U.S. farmers’ chief risk management tool, and we are not at all surprised that they are spreading false and misleading information about crop insurers on Capitol Hill. It fits the same pattern of misinformation that they have used for years in their quest to end farm policy, and it is time for policymakers to tune them out.”

    “Anyone who objectively follows crop insurance realizes that the 14.5% gross revenue rate targeted in the 2011 Standard Reinsurance Agreement is not a guaranteed net profit like EWG claims.” Zacharias said.

    “In fact, crop insurers experienced negative returns from 2011-2014 after expenses were taken into account. If crop insurance were as profitable as the critics claim, then why are providers exiting the business?

    “Again, the fact that agriculture’s opponents were off a few billion in their most recent analysis is not at all surprising since they are looking for one-sided headlines instead of honest debate and objectivity,” Zacharias said.

    “Remember, these are the same ‘experts’ who were off by $23 billion when estimating the cost of the 2012 drought; the same ‘experts’ who compared farmers to drunks at an open bar; and the same ‘experts’ who callously claimed that farmers were praying for drought instead of rain.”

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