Page 41 - Farm Bill Series_The 7 Things You Should Know

Estimates for crop insurance spending have been lowered significantly, too, largely because of a
change in CBO’s projected loss ratio for the program, says Pat Westhoff, who runs the Food and
Agricultural Policy Research Institute at the University of Missouri.

For fiscal 2018, the program is now expected to cost taxpayers $7.2 billion. In January 2016,
CBO estimated the fiscal 2018 cost at $8 billion. CBO’s new cost estimate for fiscal 2020 is $7.7
billion, which is $1 billion less than the FY20 estimate a year ago.

CBO previously assumed in its budget projections that
indemnities each year would equal the premiums paid by
farmers, plus the federal premium subsides. That is a loss ratio of
1.0. Now, the budget analysts are assuming a lower loss ratio of
0.91, meaning that losses will average less than the premiums
and subsidies.

Westhoff says the new, lower loss-ratio estimate is “more
consistent with actual history in the program.”

“That’s a very big deal and explains most of the difference in the
estimates,” he says.

For 2016 crops, the loss ratio was a very modest 0.43. After farmers paid $3.5 billion in
premiums, and the government provided $5.8 billion in premium subsides, insurance claims
totaled just $3.9 billion. CBO had estimated in January 2016 that indemnities for that year would
total $8.9 billion.

Going forward, the amount of money that the House and Senate Agriculture committees
have to write the new law will be determined by the cost estimates that the Congressional
Budget Office issues in March for the existing farm bill programs. CBO will once again
project the cost, or “baseline,” for each title and program in the bill over the next 10 years. That
March baseline then forms the pot of money that is likely to be available for the Agriculture
committees to work with when they write the new farm bill.

Under congressional pay-as-you-go rules, creating a new program, or changing the rules of
an existing program to increase its cost, will require the Agriculture committees to find an
offset for that same amount – so as not to exceed the farm bill baseline.

It’s possible that the fiscal 2018 congressional budget resolution, assuming Congress agrees on
one, could reduce the baseline by requiring a cut in farm bill spending. It’s also possible,
theoretically at least, that a budget resolution could authorize an increase in spending. It’s
happened before, though there is no sign thus far that it will happen this time.

A congressional source said it would also certainly require some heavy, unified political pressure
from groups with a stake in the bill, as well as from the White House.

The last time there was a major downturn of the farm economy heading into a farm bill debate,
in 2001, government payments to farmers totaled $22.4 billion when adjusted for inflation. That
total includes $1.9 billion in conservation program benefits.

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