oversight

Crop Insurance: USDA's Progress in Expanding Insurance for Specialty Crops

Published by the Government Accountability Office on 1999-04-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Ranking Minority Member,
                 Subcommittee on Risk Management,
                 Research, and Specialty Crops,
                 Committee on Agriculture, House of
                 Representatives
April 1999
                 CROP INSURANCE
                 USDA’s Progress in
                 Expanding Insurance
                 for Specialty Crops




GAO/RCED-99-67
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-281887

      April 16, 1999

      The Honorable Gary A. Condit
      Ranking Minority Member
      Subcommittee on Risk Management
        Research, and Specialty Crops
      Committee on Agriculture
      House of Representatives

      Dear Mr. Condit:

      Farming is inherently risky because producers operate at the mercy of
      nature and frequently are subjected to weather-related and other natural
      disasters. Over the years, the federal government has played an active role
      in helping to mitigate the effects of risk on agriculture by offering
      producers subsidized crop insurance, which allows them to receive a
      claims payment when production falls below an insured level. However,
      the federal crop insurance program has mostly focused on providing
      insurance coverage for producers who raise nonspecialty crops, such as
      wheat, corn, and soybeans. Coverage for producers who grow specialty
      crops—fruits, nuts, and vegetables, which generally have a higher crop
      value per acre—has been limited. This is, in part, because of the large
      number of specialty crops that are grown and because of specialty crops’
      unique production and risk characteristics, which may require a
      customized insurance program for individual types of crops.

      The U.S. Department of Agriculture (USDA) manages the federal crop
      insurance program and offers producers two principal levels of insurance
      coverage—catastrophic and buyup. Catastrophic insurance provides
      producers with protection against extreme crop losses for a small
      processing fee, while buyup insurance provides protection against more
      typical crop losses in exchange for a producer-paid premium, subsidized in
      part by USDA. Crop insurance is delivered through private insurance
      companies. In return for selling and servicing federal crop insurance, USDA
      reimburses the companies for their administrative costs, and both share in
      underwriting profits and losses. The federal government’s cost for the
      program—including premium subsidies, administrative fees paid to
      companies that sell crop insurance, and underwriting losses—is about
      $1.4 billion annually.

      Concerned about the availability of federal crop insurance for specialty
      crops, you asked us to examine (1) USDA’s recent progress in expanding




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                   coverage to specialty crops and (2) the new marketing practices insurance
                   companies have introduced for specialty crops and to identify potential
                   advantages and disadvantages of the practices, including their effect on
                   producers’ participation. In addition, you asked us to review the potential
                   effect on participation by producers in the catastrophic crop insurance
                   program if they were charged higher fees. In 1998, the Agricultural
                   Research, Extension, and Education Reform Act imposed a higher fee,
                   which was later reduced.1


                   USDA insures 52 specialty crops and plans to begin testing coverage for
Results in Brief   another 9 specialty crops by 2001. These 61 crops represent a majority of
                   the value of all specialty crops, but insurance coverage will not be
                   available for about 300 crops. While programs for specialty crop insurance
                   have expanded in recent years, more rapid expansion has not occurred
                   because USDA follows a deliberate multistep process involving the
                   assessment of risk and setting of premiums to ensure that the programs it
                   develops are actuarially sound.2 This process, including testing, is lengthy,
                   typically requiring about 5 years, because, among other things, the
                   production history data needed to develop a specialty crop program are
                   often not readily available. According to USDA, while the development
                   process cannot be accelerated because of the need to ensure actuarial
                   soundness, additional resources would allow the Department to evaluate
                   more crops concurrently.

                   In recent years, insurance companies have used alternatives to the
                   traditional strategy of having independent agents market federal crop
                   insurance to producers. One alternative strategy uses endorsements—an
                   insurance company pays a fee to a producer association to promote the
                   sale of its insurance product. A proposed strategy would allow an
                   insurance company to pass through administrative savings to producers in
                   the form of reduced premiums. For example, if an insurance company
                   could deliver the program for less than the administrative fee it receives
                   from USDA for this service, the company would be permitted to reduce the
                   premiums charged to the producer. These strategies could increase
                   producers’ participation and, ultimately, if USDA chooses to share in these


                   1
                    The Agricultural Research, Extension, and Education Reform Act of 1998 (P.L. 105-185, June 23,
                   1998) changed the effective cost of catastrophic insurance from a fee of $50 per policy to the higher of
                   $60 or $10 plus 10 percent of the calculated premium. The Omnibus Consolidated and Emergency
                   Supplemental Appropriations Act, 1999 (P.L. 105-277, Oct. 21, 1998) subsequently set the fee at $60 per
                   policy.
                   2
                    Actuarial soundness is the level at which premiums, including the portion paid by the government, are
                   sufficient to cover claims payments. USDA is required by law to achieve actuarial soundness.



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                                  administrative cost savings, reduce the administrative fees the government
                                  pays insurance companies. However, these strategies have some potential
                                  disadvantages. For example, USDA is concerned that they could prevent
                                  smaller insurance companies from competing if they cannot provide the
                                  economic incentives that larger companies provide.

                                  Under the now rescinded provision of the 1998 agricultural research act,
                                  the increase in the processing fee for many specialty crop farmers would
                                  have been large and participation would have declined. While we were
                                  unable to estimate the magnitude of the decline, available studies on
                                  traditional crop insurance show that, in general, for each 10-percent
                                  increase, there is a 2- to 9-percent decrease in participation.


                                  Federal crop insurance protects participating farmers against crop losses
Background                        caused by perils such as droughts, floods, hurricanes, and other natural
                                  disasters. Since 1981—the first year in which the government enlisted
                                  private insurance companies to sell and service crop insurance—federally
                                  subsidized multiple-peril crop insurance has been a principal means of
                                  managing the risk associated with crop losses.3 Federal crop insurance
                                  offers producers two primary levels of insurance coverage, catastrophic
                                  and buyup, which are available for major crops. Catastrophic insurance,
                                  created by the Federal Crop Insurance Reform and Department of
                                  Agriculture Reorganization Act of 1994, was designed to provide
                                  producers with protection against extreme crop losses for a small
                                  processing fee. Buyup insurance protects against more typical and smaller
                                  crop losses in exchange for a producer-paid premium. Table 1 shows the
                                  levels of coverage available through federal crop insurance.

Table 1: Federal Crop Insurance
Coverage Levels                   Type of insurance                   Coverage level                    Cost to producer
                                  Catastrophic                        Insures 50 percent of             Small processing fee for
                                                                      production, with payment          each policy (by county and
                                                                      provided at 55 percent of         crop)
                                                                      market price
                                  Buyup                               Insures from 50 to 75             Small processing fee for
                                                                      percent of production, with       each policy plus premium
                                                                      payment provided up to            paid by the producer based
                                                                      100 percent of market price       on level of coverage
                                  Source: USDA.



                                  3
                                   The Federal Crop Insurance Act of 1980 (P.L. 96-365, Sept. 26, 1980) authorized the use of private
                                  insurance companies to sell and service federal crop insurance policies starting with the 1981 crop
                                  year.



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USDA’s Risk Management Agency establishes the premiums, terms, and
conditions for federal crop insurance and manages the program. When
producers obtain insurance coverage, the government subsidizes the total
premium for catastrophic insurance and a portion of the premium for
more expensive buyup insurance. Specifically, for every dollar of buyup
premium, the government subsidizes an average of 40 cents and the
producer pays roughly 60 cents.4 Under the terms of a negotiated
agreement, 17 insurance companies sell crop insurance and process
claims. USDA pays these companies an administrative fee for these services.
For example, the government reimburses the participating insurance
companies 24.5 cents for every dollar of buyup insurance premium and 11
cents for catastrophic insurance. Furthermore, the companies share
underwriting profits (the difference between premiums and claims) as
well as a limited portion of any underwriting losses with the government.
However, the government absorbs the vast majority of losses.

Nonspecialty crops have experienced higher losses than specialty crops.
Beginning in October 1998, USDA is required to achieve actuarial
soundness, defined as a loss ratio of 1.075: That is, for every dollar in
premiums, including the portion paid by the government, the claims paid
would be expected to average no more than $1.075. For 1981 through 1998,
the claims paid averaged $0.99 per $1.00 of premium for specialty crops,
compared with $1.12 per $1.00 of premium for nonspecialty crops.
Appendix I provides information on crop insurance for 1998 and the loss
ratio experience by each crop since 1981.

The cost of the federal crop insurance program—including premium
subsidies, company reimbursements, and underwriting losses—has
averaged about $1.4 billion annually since 1995 and is estimated to be
$1.6 billion for 1999. In 1998, specialty crops, such as grapes, oranges,
almonds, and tomatoes, represented about 13 percent of the government’s
costs.

Many specialty crops, however, are not covered by federal crop insurance
but are instead covered by the Noninsured Crop Disaster Assistance
Program, which was created by the 1994 reform act. For an individual
producer who suffers a loss, this assistance program provides protection
only when an area—such as an entire county—suffers a loss. Thus, unlike
federal crop insurance, this program is tied to an area’s losses rather than
to an individual producer’s losses.

4
 For 1999, the government will subsidize an additional 15 to 21 cents per dollar of premium as a
special, one-time allowance related to the emergency assistance provided for crop losses in the 1999
appropriations act.



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                                        The Agricultural Research, Extension, and Education Reform Act of 1998
                                        temporarily raised the effective cost of catastrophic insurance from $50
                                        per policy to the higher of $60 or $10 plus 10 percent of the calculated
                                        premium. The higher fee was enacted as a budget offset to provide
                                        permanent funding to pay the commissions of agents selling federal crop
                                        insurance policies. However, the appropriations act for fiscal year 1999
                                        replaced this provision, requiring that all purchasers of catastrophic
                                        insurance pay no more than $60 per policy.

                                        Although the Congress has made a number of changes to the crop
                                        insurance program to encourage participation, the program has had a
                                        relatively low level of participation in terms of acres planted and insured.
                                        As shown in table 2, only about 51 percent and 64 percent of specialty crop
                                        and nonspecialty crop acres, respectively, were insured in 1997, the latest
                                        year for which complete data were available. This level of participation
                                        represents a decline from 1995, particularly for nonspecialty crops. (For a
                                        more detailed discussion of participation, see app. II.)

Table 2: Participation in the Federal
Crop Insurance Program, 1995-97                                                    Percent of planted acres

                                        Type of                  Specialty crops                             Nonspecialty crops
                                        coverage            1995            1997        Change             1995       1997        Change
                                        Catastrophic         33.8           27.3            –6.5            42.6       22.1        –20.5
                                        Buyup                24.7           24.0            –0.7            39.9       41.6          1.7
                                        Total                58.5           51.2            –7.3            82.5       63.7        –18.8
                                        Note: Totals may not add because of rounding.

                                        Source: GAO’s analysis of USDA’s data.




                                        USDA insures 52 specialty crops5 —14 of which have been added since
USDA Has Expanded                       1994—and plans to begin testing coverage for another 9 specialty crops by
the Insurance                           2001. While these 61 crops represent a majority of the value of all specialty
Program for Specialty                   crops, insurance coverage will still not be available for about 300 crops,
                                        such as taro and parsley. Programs for specialty crop insurance have not
Crops Using a                           expanded more rapidly because USDA follows a deliberate multistep
Multiyear Process                       process to ensure that the programs it develops are actuarially sound. The
                                        process includes collecting and analyzing data, setting appropriate
                                        premiums, and testing and evaluating the program. This process can be
                                        lengthy, typically requiring about 5 years, because, among other things, the


                                        5
                                         USDA also insures 23 nonspecialty crops, for a total of 75 insured crops.



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                                        data on production history needed to develop a specialty crop program are
                                        often not readily available. According to USDA, while the development
                                        process is necessary to ensure actuarial soundness, additional resources
                                        would allow it to evaluate more crops concurrently.


USDA Has Expanded the                   Between 1981 and 1994, USDA developed insurance programs for 38
Insurance Program for                   specialty crops. Since the implementation of the 1994 reform act, which
Specialty Crops, but Many               encouraged USDA to develop additional plans for specialty crops,6 the
                                        Department has developed 14 specialty crop programs, as shown in table
Crops Remain Unprotected                3.

Table 3: Specialty Crops Added to the
Federal Crop Insurance Program Since    Year                                                 Specialty crop
the 1994 Reform Act                     1995                                                 Blueberries
                                        1996                                                 Avocado/mango trees (Florida)
                                                                                             Florida fruit trees
                                        1998                                                 Avocados
                                                                                             Pecans
                                                                                             Sweet potatoes
                                        1999                                                 Cabbage
                                                                                             Cherries
                                                                                             Crambe
                                                                                             Mustard
                                                                                             Rangeland
                                                                                             Watermelons
                                                                                             Wild rice
                                                                                             Winter squash
                                        Note: Crops shown in table are pilot programs offered in limited areas.

                                        Source: GAO’s analysis of USDA’s data.



                                        Including the 14 additions, the total number of specialty crops currently
                                        covered by the federal crop insurance program is 52. USDA expects to offer
                                        insurance for many other specialty crops over the next several years. By
                                        2001, USDA plans to add nine new specialty crops, including, for example,
                                        cucumbers, mint, and strawberries. These 61 crops represent about
                                        85 percent of the market value of all specialty crops.


                                        6
                                         However, if a private sector insurance program is generally available, USDA is prohibited from
                                        implementing a competing insurance program.



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Along with adding new crops to the program, USDA expanded insurance
coverage for specialty crops in other ways, including allowing producers
to insure by crop variety and making the insurance of existing crops
available in additional areas. For example, in 1995, USDA broadened crop
insurance for grapes by offering catastrophic coverage for individual grape
varieties, such as zinfandel, merlot, and cabernet sauvignon. According to
USDA officials, participation—measured in terms of acres
insured—increased in 1996 and 1997 after this change was instituted. In
1996, USDA expanded crop insurance for citrus trees from three counties in
Texas, where it had been offered since 1983, to an additional five counties
in Florida. Moreover, in 1999, USDA began pilot testing a new plan—known
as adjusted gross revenue—in selected counties in Florida, Maine,
Massachusetts, Michigan, and New Hampshire. This new insurance plan
will provide a producer with a guaranteed level of income, which will be
determined by the producer’s reported farm income for the past 5 years. It
will also provide coverage for all specialty and nonspecialty crops as well
as some livestock.7

Despite this progress, many crops remain uninsured, and many covered
crops are not insured in all the areas where they are grown. USDA does not
offer insurance for about 300 commercially grown specialty crops, which
represent about 15 percent of the economic value of specialty crops grown
in the United States.8 Many of the crops for which insurance is not
available are small crops, such as taro, guava, and parsley, that are grown
in limited areas. In addition, although crop insurance may exist for a
particular specialty crop, the coverage may not be available in all locations
where the crop is grown. For example, crop insurance for grapes is
available in selected counties in Arkansas, California, Michigan, Missouri,
New York, Ohio, Oregon, Pennsylvania, and Washington but not in other
growing areas—specifically, selected counties in Arizona, Georgia, North
Carolina, and South Carolina. According to USDA, crop insurance for grapes
is not available in these states because producers have shown limited
interest.

Furthermore, USDA’s authority to offer revenue insurance plans for
specialty and nonspecialty crops is legislatively limited by the Federal
Crop Insurance Act, as amended. The act only allows USDA to offer revenue
insurance on a pilot basis through 2000. According to USDA, legislative

7
 In addition, USDA developed other new insurance plans for nonspecialty crops in recent years,
including plans offering revenue coverage.
8
 Because of differences in categorization, these 300 crops represent approximately 900 crops and crop
varieties covered by USDA’s Noninsured Crop Disaster Assistance Program.



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                                        changes would be necessary to offer revenue insurance on a permanent
                                        basis.


USDA’s Process for                      USDA’s process for developing specialty crop insurance for a particular
Developing Specialty Crop               crop is deliberate and often time-consuming, typically requiring about 5
Insurance                               years to complete. Specifically, collecting and analyzing data to determine
                                        whether a new insurance program is feasible can require 2 years or more,
                                        and pilot testing can add another 3 years. According to USDA, while the
                                        development process is necessarily thorough to ensure actuarial
                                        soundness, additional resources would allow it to evaluate more crops
                                        concurrently. Table 4 presents USDA’s multistep development process.

Table 4: Major Steps in USDA’s
Process for Developing Specialty Crop   Step                                   Development process
Insurance                               1                                      Select new crop to insure
                                        2                                      Assemble multidisciplinary program
                                                                               development team
                                        3                                      Collect data necessary for program
                                                                               development
                                        4                                      Analyze data to develop the specific
                                                                               provisions of the program
                                        5                                      Test the program
                                        6                                      Evaluate test results, make necessary
                                                                               modifications to program
                                        7                                      Implement the program on a permanent
                                                                               basis or take other actions
                                        Source: USDA.



                                        In steps 1, 2, and 3—beginning the development process—USDA considers
                                        several criteria when selecting a new crop to insure, including legislative
                                        mandates, its own initiatives, and requests by producers and commodity
                                        groups. Appendix III discusses these criteria and their application to the
                                        14 crops added to the program since 1995. Because data for specialty
                                        crops are often not readily available, the program development team
                                        collects data about the crop from various sources, including producer
                                        organizations and land grant universities. These data concern historical
                                        production, growing practices, and the risks associated with producing the
                                        crop. Appendix IV discusses the unique risk characteristics of specialty
                                        crops.




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                     In step 4—specifying the provisions for the new program—the
                     development team develops appropriate premium rates by developing a
                     statistical model using the collected data or by applying premium rates
                     from similar crops. In addition, the team analyzes the collected data to
                     establish insured crop prices and determine loss adjustment standards.
                     Appendix V describes in detail the insurance plans and the rating methods
                     USDA uses to set premiums for specialty crops.


                     In steps 5, 6, and 7—the testing and evaluation phase—USDA introduces the
                     new program on a pilot basis and uses the experience of this pilot to
                     develop empirical data and refine program operations. USDA also ensures
                     that adequate producer participation can be achieved. Adequate
                     participation is generally considered key to achieving the program’s
                     legislative objective of actuarial soundness. Without sufficient
                     participation among producers, opportunities for diversification across
                     various growing conditions and farming practices will be limited, and this
                     limitation will jeopardize the actuarial soundness of the insurance
                     program. For example, USDA developed a pilot revenue insurance policy
                     for almonds in two California counties in 1998, but because premiums for
                     the coverage would have been higher than premiums for already available
                     yield insurance, almond producers indicated they would be unwilling to
                     purchase the revenue coverage. Consequently, USDA did not initiate the
                     program, citing concerns about the program’s actuarial soundness because
                     of expected low participation.


                     In recent years, new marketing strategies for crop insurance have been
New Marketing        introduced that use endorsements by producer associations to sell
Strategies Offer     insurance or that pass through administrative savings to producers. These
Certain Advantages   strategies could increase producers’ participation and ultimately reduce
                     the government’s administrative reimbursements to insurance companies,
and Disadvantages    and one of these strategies could also reduce producers’ premiums. At the
                     same time, however, according to USDA, these strategies have some
                     potential disadvantages. For example, USDA is concerned that the
                     strategies could prevent smaller insurance companies from competing if
                     they cannot provide the economic incentives that larger companies
                     provide. USDA is developing draft regulations to govern the use of the new
                     marketing strategies.




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New Strategies Have          In recent years, insurance companies have used alternatives to the
Potential to Increase        traditional structure of having independent agents market federal crop
Participation and Decrease   insurance to producers. The most common of these alternatives has an
                             insurance company paying a fee to a producer association—such as a
Costs for Federal Crop       cooperative or processor—in exchange for the association’s endorsement
Insurance                    and the right to use the association’s name and logo on direct mailings to
                             the association’s members to market federal crop insurance. Since 1995,
                             this new strategy, frequently referred to as an “endorsement agreement,”
                             has principally occurred in California for specialty crops. According to
                             USDA’s Risk Management Agency, three of the companies selling federal
                             crop insurance engaged in an endorsement agreement with at least one
                             producer association in 1998. These endorsements are used mostly for
                             selling catastrophic insurance.

                             Endorsements can contribute to increasing participation in specialty crop
                             insurance programs. For example, according to a large association of
                             California wine grape producers that has an endorsement agreement with
                             one of the insurance companies, participation among the association’s
                             members increased from roughly 20 percent in 1994, prior to entering into
                             the agreement, to about 40 percent in 1998. Similarly, according to a key
                             California citrus cooperative that also has an endorsement agreement,
                             crop insurance premiums for the cooperative’s members increased from
                             about $2.5 million in 1995 to $4 million in 1998, or roughly 60 percent.
                             Producer associations told us that endorsements have been successful
                             because specialty crop producers generally rely on their associations for
                             key information about production practices and risk management.

                             Endorsements may provide other advantages as well. They can lower
                             insurance companies’ delivery costs by enabling the companies to reach
                             their intended audience through targeted marketing to association
                             members. Over the long term, therefore, USDA may be able to share in these
                             savings by reducing the administrative reimbursements it pays to
                             companies. Furthermore, according to USDA, endorsements may allow
                             companies to penetrate market niches not currently reached by
                             independent agents and to promote “one-stop shopping” because many
                             associations and cooperatives provide multiple producer services.

                             Another new marketing strategy, authorized by the 1994 reform act for
                             buyup insurance, could also increase participation. Under this strategy, an
                             insurance company could reduce the premiums charged to a producer if
                             the company can deliver the program for less than its administrative
                             reimbursement from USDA. For example, if the expenses of selling and



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                          servicing crop insurance policies are less than the administrative
                          reimbursement, the administrative savings could be passed through to the
                          producer in an effort to increase the company’s share of crop insurance
                          sales. Ultimately, increased sales by a number of companies could raise
                          participation in the crop insurance program and reduce the administrative
                          fees the government pays insurance companies. As of February 1999, USDA
                          had received four proposals to implement this new strategy.


New Strategies May Pose   Although new marketing strategies may provide certain benefits to the
Risks to the Crop         crop insurance program, they may also undermine the program in several
Insurance Program         ways. First, USDA is concerned that the strategies could harm smaller
                          insurance companies. For example, the strategies could prevent these
                          smaller companies from competing if they cannot provide the economic
                          incentives to producer associations that larger companies provide.

                          Second, with the use of endorsements, USDA has a concern about rebating.
                          Rebating is the offering of any benefit or valuable consideration as an
                          inducement to purchase insurance. Rebating can occur when insurance
                          companies pay producer organizations large endorsement fees to market
                          crop insurance. These organizations could use the fees to provide benefits
                          or services to those producers purchasing the insurance, such as lowering
                          these members’ dues or providing services that are not available to those
                          producers who did not purchase crop insurance. For example, in 1995, one
                          cooperative with an endorsement agreement paid for catastrophic
                          insurance for those members who agreed to sign up for the insurance.
                          According to USDA, the cooperative was funding the cost of the
                          catastrophic insurance from the endorsement fee it received from the
                          insurance company. USDA considered this action to be a form of
                          rebating—a direct inducement to producers to buy the coverage.
                          Consequently, starting in 1996, USDA implemented restrictions against
                          using endorsement fees to pay for catastrophic insurance for producers.

                          Third, according to USDA, these strategies could reduce a company’s ability
                          to diversify its risk over a large geographic area if marketing becomes
                          highly concentrated.

                          Finally, USDA believes that new marketing strategies may jeopardize its use
                          of producer associations to independently verify data for rating, coverage,
                          and claim calculations. This could occur because associations would be
                          involved in selling crop insurance to their members while at the same time
                          maintaining the production records USDA uses to settle claims.



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                            To address these potential problems, USDA is developing new regulations
                            to govern the use of alternative marketing strategies. The draft regulations
                            require that insurance companies selling federal crop insurance submit all
                            marketing agreements and endorsements to USDA for approval prior to
                            implementing them. This step is designed to ensure that these agreements
                            and endorsements are in compliance with regulations and that the
                            program is safeguarded. In addition, in 1999, USDA’s Risk Management
                            Agency expects to initiate a review of new marketing strategies that will
                            evaluate potential advantages and disadvantages in further detail.


                            Under the now-rescinded provision of the Agricultural Research,
Higher Insurance Fees       Extension, and Education Reform Act of 1998 (P.L. 105-185, June 23,
for Catastrophic            1998),9 the processing fee for catastrophic insurance for many specialty
Insurance Would             crop producers would have been significantly higher than $50—as much
                            as $3,821—and participation would have declined. While we were unable
Reduce Producer             to estimate the magnitude of the decline, available studies for crop
Participation, but the      insurance show that, in general, for each 10-percent increase in insurance
                            costs to producers, there is a 2- to 9-percent decrease in participation.10
Magnitude of the
Reduction Is Unclear
Payments for Specialty      According to our analysis of 1997 sales for catastrophic crop insurance,
Crop Catastrophic           the average fee of all specialty crop policies would have increased from
Insurance Would Have        $50 to $189 had the 1998 provision gone into effect. Table 5 shows the
                            average fees that would have resulted from proposed fee increases and the
Been Significantly Higher   percentage of policies affected in different premium ranges. The average
                            fees shown reflect the amount producers would have paid if the
                            processing fees had been increased to the greater of $60 or 10 percent of
                            the calculated premium plus $10. For 15 percent of the policies, the
                            average fee would have risen from $50 to $487, and for the top 2 percent of
                            the policies, the average fee would have risen from $50 to $3,821.




                            9
                             The fee increase enacted under the 1998 agricultural research act changed the effective cost of
                            catastrophic insurance from a fee of $50 per policy to the higher of $60 or $10 plus 10 percent of the
                            calculated premium. The Omnibus Consolidated and Emergency Supplemental Appropriations Act,
                            1999 (P.L. 105-277, Oct. 21, 1998) subsequently set the fee at $60 per policy.
                            10
                              The one available study on specialty crops suggests that declines in participation for specialty crops
                            may be greater. This study, however, was based on a survey that had a low response rate. The low
                            response rate limited the validity of the results, and therefore we did not include them in our range.



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Table 5: Potential Fees for Catastrophic Crop Insurance If Higher Processing Fee Had Been Implemented
Dollars per policy
                                                Specialty crops                                          Nonspecialty crops
                                 Average                                  Percent of           Average                                 Percent of
Premium rangea                   premium           Average feeb             policies           premium        Average feeb               policies
$500 or less                         $205                     $60                  53               $143                 $60                  82
501 to 1,000                          717                       82                 17                698                  80                  10
1,001 to 2,000                      1,410                     151                  13              1,379                 148                   5
2,001 to 15,000                     4,769                     487                  15              3,986                 409                   3
15,000+                            38,113                   3,821                   2             26,997               2,710                   0c
Average/total                      $1,789                    $189                 100               $398                 $60                 100
                                            a
                                          USDA calculates and tracks premiums related to each catastrophic insurance policy to establish
                                         administrative reimbursements and any underwriting profits or losses owed the insurance
                                         company that sells the policy. Premiums are based upon factors that include the value of the crop
                                         insured and the crop’s risks of production.
                                            b
                                                Average fee equals the greater of $60 or 10 percent of the average premium plus $10.
                                            c
                                            Rounds to less than 1 percent.

                                         Source: GAO’s analysis of USDA’s data.



                                            As the table shows, if the higher fee schedule had been implemented, the
                                            average fee would have been greater for specialty crop producers than for
                                            nonspecialty crop producers. This is because specialty crops have a higher
                                            value than nonspecialty crops—a key determinant in calculating
                                            premiums—making insurance for specialty crops generally more costly
                                            per acre. For example, the average value of six major nonspecialty crops
                                            ranges from about $120 to $720 per acre. In comparison, the value of a
                                            single specialty crop can be as high as about $8,800 per acre.


Available Studies Indicate                  According to available studies on nonspecialty crops and experts we
Participation Declines as                   spoke with, fee increases would lead to lower participation. However, the
Producers’ Costs Increase                   magnitude of the effect on participation is unclear. The studies indicate
                                            that a 10-percent increase in cost to the producer would result in a 2- to
                                            9-percent decrease in participation. In addition, if the cost increase were
                                            larger, the decline in participation would be correspondingly larger.

                                            The data from these studies deal with specific crops, regions, and time
                                            periods. Furthermore, these studies generally looked at nonspecialty
                                            crops, such as corn and wheat, as well as at buyup crop insurance prior to
                                            the introduction of catastrophic insurance, and are therefore most



                                         Page 13                                                   GAO/RCED-99-67 Specialty Crop Insurance
                  B-281887




                  relevant to buyup insurance. For these reasons, it is not possible to project
                  directly from these studies to determine how much lower participation in
                  specialty crop insurance would be as a result of an increase in fees.

                  While premiums can affect producers’ participation, other factors, such as
                  the availability of federal payments for crop losses, can influence a
                  producer’s decision to purchase crop insurance. If producers believe that
                  disaster relief will be forthcoming when growing or market conditions are
                  poor, they could view federal payments for crop losses as a free substitute
                  for crop insurance. Under these conditions, federal payments could have
                  the unintended effect of reducing participation.


                  We provided USDA with a draft of this report for review and comment. USDA
Agency Comments   made a number of technical comments and suggestions, which we
                  incorporated, as appropriate. USDA’s comments and our responses are
                  presented in detail in appendix VI.


                  To determine the progress USDA has made in expanding federal insurance
Scope and         coverage for specialty crops, we reviewed agency documentation and
Methodology       discussed with USDA officials their efforts to expand the number of
                  locations for existing specialty crop programs and to develop new
                  programs. We described the methods used to develop premiums for
                  specialty crop insurance programs by summarizing the basic specialty
                  crop plans and rating methods used by USDA. We also interviewed selected
                  agency officials and academicians familiar with the specialty crop
                  insurance area.

                  To review the new marketing practices insurance companies have
                  introduced for specialty crops and to identify potential advantages and
                  disadvantages of the practices, including their effect on producers’
                  participation, we reviewed pertinent documents from USDA and producer
                  associations. Our analysis included discussions with USDA as well as with
                  selected producer associations and insurance companies in key specialty
                  crop states, including California and Florida.

                  To examine the potential effect of increased insurance costs on specialty
                  crop producers’ participation in the crop insurance program, we analyzed
                  USDA’s crop insurance databases to determine what the impact would have
                  been for different policy sizes if the increases had been applied to
                  catastrophic insurance in 1997. We also reviewed studies performed by



                  Page 14                                  GAO/RCED-99-67 Specialty Crop Insurance
B-281887




economists and academic experts on producers’ responses to changes in
the price for crop insurance.

We conducted our review from June 1998 through March 1999 in
accordance with generally accepted government auditing standards.
Although we did not independently assess the accuracy and reliability of
USDA’s computerized databases, we used the same files USDA uses to
manage the crop insurance program, which are the only data available.


We are sending copies of this report to Senator Richard Lugar, Chairman,
and Senator Tom Harkin, Ranking Minority Member, Senate Committee on
Agriculture, Nutrition, and Forestry; Representative Larry Combest,
Chairman, and Representative Charles Stenholm, Ranking Minority
Member, House Committee on Agriculture. We are also sending copies of
this report to: The Honorable Dan Glickman, Secretary of Agriculture; The
Honorable Kenneth Ackerman, Administrator of the Risk Management
Agency; and The Honorable Jacob Lew, Director of the Office of
Management and Budget. Copies will also be made available to others
upon request. If you or your staff have any questions about the report,
please contact me on (202) 512-5138. Major contributors to this report are
listed in appendix VII.

Sincerely yours,




Lawrence J. Dyckman
Director, Food and
  Agriculture Issues




Page 15                                GAO/RCED-99-67 Specialty Crop Insurance
Contents



Letter                                                                                              1


Appendix I                                                                                         18
Crop Insurance
Experience, 1998
Appendix II                                                                                        21
Participation in
Specialty Crop
Insurance Programs
Appendix III                                                                                       26
Factors USDA
Considers When
Selecting Crops to
Review for Insurance
Appendix IV                                                                                        29
                         Specialty Crops Often Experience Greater Market Price Risk                29
Characteristics of         Than Nonspecialty Crops
Specialty Crops Affect   Production Risks for Many Specialty Crops Differ From Those of            29
                           Nonspecialty Crops
Insurance Risk           Relationship Between Price and Yield Is Stronger for Some                 30
                           Specialty Crops Than for Nonspecialty Crops
                         Specialty Crop Producers Manage Risk Through Various Types of             30
                           Vertical Arrangements


Appendix V                                                                                         32
                         Several Types of Crop Insurance Plans Are Available                       32
Major Specialty Crop     Methods Used to Set Premium Rates for Specialty Crops                     34
Insurance Plans and
Methods Used to
Calculate Premiums




                         Page 16                               GAO/RCED-99-67 Specialty Crop Insurance
                        Contents




Appendix VI                                                                                        36
Comments From the
U.S. Department of
Agriculture
Appendix VII                                                                                       44
Major Contributors to
This Report
Tables                  Table 1: Federal Crop Insurance Coverage Levels                             3
                        Table 2: Participation in the Federal Crop Insurance Program,               5
                         1995-97
                        Table 3: Specialty Crops Added to the Federal Crop Insurance                6
                         Program Since the 1994 Reform Act
                        Table 4: Major Steps in USDA’s Process for Developing Specialty             8
                         Crop Insurance
                        Table 5: Potential Fees for Catastrophic Crop Insurance If Higher          13
                         Processing Fee Had Been Implemented
                        Table I.1: Crop Insurance Experience for Specialty Crops                   18
                        Table I.2: Crop Insurance Experience for Nonspecialty Crops                20
                        Table II.1: Nationwide Participation for Specialty Crops by                21
                         Category, 1997
                        Table II.2: Nationwide Participation for Specialty and                     22
                         Nonspecialty Crops, 1997
                        Table II.3: Crop Insurance Participation for Major Specialty Crop          23
                         States and Selected Specialty Crops Produced, 1997
                        Table III.1: Crops Scheduled for Pilot Testing, by Year                    28




                        Abbreviations

                        USDA       U.S. Department of Agriculture


                        Page 17                                GAO/RCED-99-67 Specialty Crop Insurance
Appendix I

Crop Insurance Experience, 1998


                                          The tables in this appendix show information on crop insurance for 1998
                                          and the loss ratio experienced by each crop since 1981.1 Table I.1 shows
                                          these data for specialty crops, while table I.2 shows these data for
                                          nonspecialty crops.


Table I.1: Crop Insurance Experience for Specialty Crops
Acres insured and dollars in thousands
                                                                                                                                       Loss ratio
                                                                                                                                            since
                                                          1998                                                         First year      insurance
                                                         Government                                                   insurance           offered
                      Policies in     Acres        Total    premium                  Claims                               offered        through
Crop                       force    insured    premiums      subsidy               payments        Loss ratioe       since 1981              1998
Almonds                    2,840       268        $24,927           $11,547          $20,154               0.81             1981                 1.02
Apples                     3,177       237           14,283          10,213             7,610              0.53             1981                 1.23
Avocado/
mango trees
                                          d
(Florida)                    269                        104               84                 0             0.00             1996                 0.01
Avocados                     286         8            2,103            2,040                 3             0.00             1998                 0.00
Blueberries                  238        21              797              737              168              0.21             1995                 0.31
Canning beans                536        62              940              596              369              0.39             1988                 0.79
                                          d
Citrus trees               1,194                      4,566            2,130                 0             0.00             1983                 0.68
        a
Citrus                    10,975       816           18,684          15,317             1,489              0.08             1981                 0.50
Cranberries                  517        25            4,694            2,216            1,367              0.29             1984                 0.98
Dry beans                 10,186      1,452          26,291          12,873            15,981              0.61             1981                 1.18
Dry peas                   1,496       195            1,046              590              959              0.92             1981                 0.90
Figs                          57         8              334              185                79             0.24             1988                 0.47
                                          d
Florida fruit trees        1,406                      3,031            2,814                 0             0.00             1996                 0.00
Grapes (table)               443        88            4,909            4,574              700              0.14             1984                 0.54
Grapes (wine)              5,006       469           23,039          18,427             4,566              0.20             1981                 0.61
Green peas                 2,367       148            2,072              979            1,936              0.93             1981                 0.97
                                c         c                 c                c                 c                 c
Macadamia nuts                                                                                                              1988                 0.07f
Macadamia
                                          d
trees                         33                        724              386                 0             0.00             1988                 0.00
                                          d
Nursery                    1,574                     18,477          15,179             3,587              0.19             1986                 0.90
Onions                       570        62            5,231            4,020            2,287              0.44             1988                 0.95
Peaches                      865        41            2,855            1,750            3,635              1.27             1981                 2.37
Pears                        751        36            1,264            1,005              116              0.09             1989                 0.18
                                                                                                                                      (continued)
                                           1
                                            We chose 1981 because the Federal Crop Insurance Act of 1980 significantly expanded the crop
                                           insurance program and, for the first time, enlisted private insurance companies to sell and service
                                           federal crop insurance policies. The U.S. Department of Agriculture (USDA) implemented the
                                           provisions of this act in 1981.



                                           Page 18                                                 GAO/RCED-99-67 Specialty Crop Insurance
                                              Appendix I
                                              Crop Insurance Experience, 1998




Acres insured and dollars in thousands
                                                                                                                                          Loss ratio
                                                                                                                                               since
                                                               1998                                                        First year     insurance
                                                               Government                                                 insurance          offered
                   Policies in         Acres             Total    premium                 Claims                              offered       through
Crop                    force        insured         premiums      subsidy              payments       Loss ratioe       since 1981             1998
Pecans                    144              36              1,372            1,000              277             0.20            1998              0.20
Peppers (fresh)            39               8              2,930            1,252            2,754             0.94            1984              1.29
Plums                     685              23              1,146              773              768             0.67            1990              1.44
Popcorn                 1,403             194              3,046            1,296            4,342             1.43            1984              1.43
Potatoes                2,454             790             37,603           21,109           22,973             0.61            1981              1.43
Prunes                    764              59              4,353            2,073           10,970             2.52            1986              1.24
                                             d
Raisins                 2,284                             12,261            5,186              255             0.02            1981              0.69
           b
Stonefruit              1,686              68              4,392            2,992            2,225             0.51            1988              0.82
Sweet corn
(fresh)                   134              41              1,138              667              223             0.20            1985              0.76
Sweet corn
(processing)            2,580             218              2,022              979              747             0.37            1981              0.88
Sweet potatoes            182              20                688              514            1,173             1.71            1998              1.71
Tomatoes (fresh)          327              56              7,603            4,603            3,298             0.43            1984              1.02
Tomatoes
(processing)              796             223              6,994            4,491            2,018             0.29            1981              0.58
Walnuts                   761              61              1,501            1,219              337             0.22            1984              0.68
Total                  59,025            5,731         $247,421         $155,815         $117,366              0.47                              0.99

                                              Note: Data for the seven types of citrus fruit as well as the three types of stonefruit are combined.
                                              a
                                                  Citrus includes grapefruit, lemons, mandarins, murcotts, oranges, tangelos, and tangerines.
                                              b
                                                  Stonefruit includes apricots, nectarines, and peaches grown in California.
                                             c
                                              The U.S. Department of Agriculture (USDA) did not report 1998 data for macadamia nuts
                                             because the policy was extended in order to accommodate modifications made during 1998. The
                                             revised policy is in place for 1999.
                                              d
                                                  Nursery, tree, and raisin crops use a measurement other than acres.
                                              e
                                                  Loss ratio is calculated by dividing claims payments by total premiums.
                                              f
                                                 Loss ratio is calculated using macadamia nut data for 1988 through 1997.

                                             Source: GAO’s analysis of USDA’s data.




                                             Page 19                                                   GAO/RCED-99-67 Specialty Crop Insurance
                                             Appendix I
                                             Crop Insurance Experience, 1998




Table I.2: Crop Insurance Experience for Nonspecialty Crops
Acres insured and dollars in thousands
                                                                                                                                  Loss ratio
                                                                                                                                       since
                                                          1998                                                       First year   insurance
                                                           Government                                               insurance        offered
                  Policies in       Acres            Total    premium               Claims                              offered     through
Crop                   force      insured        premiums      subsidy            payments        Loss ratioa      since 1981           1998
Barley                25,661         3,969         $19,905           $9,718          $15,566              0.78           1981          1.41
Canola                 4,524          781             6,565            3,138            3,709             0.56           1995          1.26
Corn                 359,875        51,074         534,607          233,039          292,505              0.55           1981          0.83
Cotton                57,352        11,577         253,906          150,299          334,866              1.32           1981          1.25
Extra long
staple cotton            842          280             8,037            4,334          18,380              2.29           1984          1.61
Flaxseed               2,069          212               959              493              390             0.41           1981          1.23
Forage
production             9,341         1,117            5,855            4,347            2,378             0.41           1981          0.91
Forage seeding         2,286            88              699              435              100             0.14           1981          1.15
Grain sorghum         65,451         6,778           51,008          25,184           85,303              1.67           1981          1.32
Hybrid corn
seed                   4,155          403            12,130            5,155            2,758             0.23           1983          0.96
Millet                   403            51              237              114              168             0.71           1996          0.60
Oats                  15,979          940             4,220            2,435            2,571             0.61           1981          1.44
Peanuts               13,121         1,272           38,175          17,362           36,307              0.95           1981          1.71
Rice                   9,325         2,019           16,330          11,674           10,868              0.67           1981          1.51
Rye                      325            35              127               68               70             0.55           1981          0.88
Safflower                603          111               732              427              357             0.49           1987          3.93
Soybeans             320,925        45,506         313,988          149,838          139,976              0.45           1981          1.01
Sugarbeets             7,263         1,116           23,169          10,518           16,878              0.73           1981          0.93
Sugarcane                968          743             6,841            5,719            1,345             0.20           1981          0.88
Sunflowers            15,344         2,685           18,643            9,181          12,868              0.69           1981          1.37
Hybrid sorghum
seed                     461            38            1,154              953               89             0.08           1988          1.05
Tobacco               38,245          459            46,209          19,428           90,498              1.96           1981          1.54
Wheat                227,300        44,237         264,747          126,264          146,926              0.55           1981          1.30
Total              1,181,818      175,490        $1,628,243        $790,123      $1,214,875               0.75                         1.12
                                             a
                                             Loss ratio is calculated by dividing claims payments by total premiums.

                                          Source: GAO’s analysis of USDA’s data.




                                          Page 20                                                GAO/RCED-99-67 Specialty Crop Insurance
Appendix II

Participation in Specialty Crop Insurance
Programs

                                           The tables in this appendix show the percentage of participation, in terms
                                           of acres planted and insured, for selected specialty crops for 1997, the
                                           latest year complete data were available. Table II.1 shows nationwide
                                           participation by specialty crop category; table II.2 shows nationwide
                                           participation for a cross-section of specialty crops and the major
                                           nonspecialty crops; and table II.3 shows the major specialty crop states
                                           and selected specialty crops they produce.

Table II.1: Nationwide Participation for
Specialty Crops by Category, 1997          Acres in thousands

                                           Specialty                                                    Percent of planted acres
                                           crop                    Planted          Insured Catastrophic             Buyup
                                           categories                acres            acres    coverage            coverage           Overall
                                           Noncitrus fruits           1,712              979             43.9            13.3               57.2
                                           Vegetables                 5,640           2,918              20.5            31.2               51.7
                                           Nuts                         606              323             27.3            26.0               53.3
                                           Citrus fruits              1,152              448             35.7              3.2              38.9
                                           Total                      9,110           4,668              27.3            24.0               51.2
                                           Note: This table excludes fruit trees, macadamia nut trees, raisins, and nursery crops because
                                           these crops use a measurement other than acres.

                                           Source: GAO’s analysis of USDA’s data.




                                           Page 21                                              GAO/RCED-99-67 Specialty Crop Insurance
                                           Appendix II
                                           Participation in Specialty Crop Insurance
                                           Programs




Table II.2: Nationwide Participation for
Specialty and Nonspecialty Crops,          Acres in thousands
1997                                                                                                Percent of planted acres
                                           Selected               Planted           Insured Catastrophic       Buyup          Total
                                           crops                    acres             acres    coverage      coverage participation
                                           Specialty
                                           crops
                                           Almonds                    410              259          27.0          36.2          63.2
                                           Cranberries                  35              24          39.7          30.5          70.2
                                           Pears                        69              33          45.0            1.9         47.0
                                           Peppers
                                           (fresh)                      68               8            3.9           7.7         11.6
                                           Tomatoes
                                           (fresh and
                                           processed)                 423              225          27.4          25.9          53.2
                                           Walnuts                    177               51          25.0            4.0         29.0
                                           Other
                                           specialty
                                           crops                    7,928             4,068         27.3          24.0          51.3
                                           Total                    9,110             4,668         27.3          24.0          51.2
                                           Nonspecialty
                                           crops
                                           Corn                    80,227            49,396         19.9          41.7          61.6
                                           Cotton                  13,808            11,662         37.6          46.8          84.5
                                           Grain sorghum           10,108             6,282         20.3          41.9          62.1
                                           Peanuts                  1,431             1,180         23.3          59.1          82.5
                                           Soybeans                70,850            43,566         24.0          37.5          61.5
                                           Wheat                   74,605            50,669         21.0          46.9          67.9
                                           Other
                                           nonspecialty
                                           crops                   23,827            12,299         19.3          32.3          51.6
                                           Total                  274,856           175,054         22.1          41.6          63.7
                                           Source: GAO’s analysis of USDA’s data.




                                           Page 22                                            GAO/RCED-99-67 Specialty Crop Insurance
                                           Appendix II
                                           Participation in Specialty Crop Insurance
                                           Programs




Table II.3: Crop Insurance Participation
for Major Specialty Crop States and                                                                                      Percent
Selected Specialty Crops Produced,         State              Crop                 Planted acres   Insured acres    participation
1997                                       Arizona
                                                              Apples                      4,000           3,198             80.0
                                                              Grapefruit                  4,700             146               3.1
                                                              Lemons                     13,900             345               2.5
                                                              Oranges                     9,200             293               3.2
                                                              Potatoes                    6,200           4,505             72.7
                                                              Table grapes                4,200           2,090             49.8
                                           California
                                                              Almonds                   410,000         259,068             63.2
                                                              Apples                     38,500          13,159             34.2
                                                              Apricots (fresh
                                                              and processed)             19,100          10,336             54.1
                                                              Dry beans                 135,000          42,706             31.6
                                                              Figs                       16,000           7,777             48.6
                                                              Grapefruit                 18,600             531               2.9
                                                              Lemons                     47,400             408               0.9
                                                              Nectarines
                                                              (fresh)                    37,100          20,187             54.4
                                                              Oranges                   200,000           8,121               4.1
                                                              Peaches (fresh
                                                              and processed)             66,200          35,178             53.1
                                                              Pears                      22,800          10,774             47.3
                                                              Plums (fresh)              42,000          24,549             58.5
                                                              Potatoes                   43,700          14,768             34.3
                                                              Prunes                     79,500          56,022             70.5
                                                              Tomatoes
                                                              (processing)              270,000         168,519             62.4
                                                              Tomatoes (fresh)           40,800          17,062             41.8
                                                              Walnuts                   177,200          51,439             29.0
                                           Florida
                                                              Peppers (fresh)            19,200           7,587             39.5
                                                              Citrus                    815,100         437,648             53.7
                                                              Potatoes                   43,500          31,487             72.4
                                                              Sweet corn
                                                              (fresh)                    43,300          27,172             62.8
                                                              Tomatoes (fresh)           38,300          21,984             57.4
                                           Georgia
                                                              Apples                      2,300             703             30.6
                                                                                                                      (continued)



                                           Page 23                                        GAO/RCED-99-67 Specialty Crop Insurance
Appendix II
Participation in Specialty Crop Insurance
Programs




                                                                              Percent
State              Crop                 Planted acres   Insured acres    participation
                   Peaches                    20,000          12,531             62.7
                   Sweet corn
                   (fresh)                    20,000           5,149             25.7
                   Tomatoes (fresh)            5,500             740             13.5
Michigan
                   Apples                     55,000          26,998             49.1
                   Blueberries                17,000           7,817             46.0
                   Dry beans                 315,000         181,326             57.6
                   Onions                      6,200           1,623             26.2
                   Peaches                     5,500           1,875             34.1
                   Potatoes                   48,000          28,685             59.8
                   Tomatoes
                   (processing)                3,800           2,024             53.3
                   Wine grapes                12,100           7,448             61.6
New York
                   Apples                     51,000          23,536             46.1
                   Dry beans                  40,000          13,283             33.2
                   Green peas                 18,900           6,191             32.8
                   Onions                     12,500           8,664             69.3
                   Peaches                     1,600             169             10.6
                   Potatoes                   28,500           8,157             28.6
                   Sweet corn
                   (processing)               40,400          18,289             45.3
                   Wine grapes                31,500          14,058             44.6
Oregon
                   Apples                      8,700           3,136             36.0
                   Cranberries                 2,000             579             29.0
                   Dry beans                  11,000           2,056             18.7
                   Green peas                 28,100          19,419             69.1
                   Onions                     19,800           8,631             43.6
                   Pears                      17,300          11,729             67.8
                   Sweet corn
                   (processing)               41,500           1,427               3.4
                   Wine grapes                 6,300           1,124             17.8
Texas
                   Dry beans                  15,000           3,790             25.3
                   Grapefruit                 20,400               0               0.0
                   Oranges                     8,700               0               0.0
                   Peaches                    12,000           2,618             21.8
                                                                           (continued)


Page 24                                        GAO/RCED-99-67 Specialty Crop Insurance
Appendix II
Participation in Specialty Crop Insurance
Programs




                                                                               Percent
State               Crop                 Planted acres   Insured acres    participation
Washington
                    Apples                    155,000          97,483             62.9
                    Cranberries                 1,500             993             66.2
                    Dry beans                  38,000          11,178             29.4
                    Green peas                 54,400          24,752             45.5
                    Onions                     14,700           9,185             62.5
                    Pears                      24,400           9,992             41.0
                    Potatoes                  152,000          73,594             48.4
                    Sweet corn                 89,600          34,320             38.3
                    Wine grapes                37,000          23,774             64.3
Wisconsin
                    Apples                      6,500             286               4.4
                    Cranberries                13,100           9,674             73.8
                    Dry beans                   8,800           3,988             45.3
                    Green peas                 62,500          16,108             25.8
                    Potatoes                   84,000          21,258             25.3
                    Sweet corn
                    (processing)              115,800          31,413             27.1

Source: GAO’s analysis of USDA’s data.




Page 25                                         GAO/RCED-99-67 Specialty Crop Insurance
Appendix III

Factors USDA Considers When Selecting
Crops to Review for Insurance

               The U.S. Department of Agriculture (USDA) considers several criteria when
               selecting crops to review for insurance, with requests for insurance for
               specific crops being a major factor. These requests may come from
               producers; producer associations; reinsured companies; individual
               Members of Congress; USDA’s regional service offices; or other USDA
               agencies, such as the Farm Service Agency.

               According to USDA, several factors are considered in setting priorities for
               these requests. First, USDA gives priority consideration to developing new
               crop insurance programs for crops that, for the most recent year, meet at
               least one of four criteria for economic significance: (1) within the
               agricultural statistics district that is to be covered, the value of the crop
               exceeds $3 million;1 (2) within the state that is covered, the value of the
               crop exceeds $9 million; (3) within the area served by the USDA regional
               service office responsible for administering the insurance program for that
               crop, the value of the crop exceeds $15 million; or (4) at the national level,
               the value of the crop exceeds $30 million.

               Second, USDA considers producer interest, as measured in a number of
               ways. Specifically, high levels of payments for disaster assistance and the
               Noninsured Crop Disaster Assistance Program for a crop may signal a
               potentially high interest among producers of that crop for an insurance
               program. In addition, USDA relies on the recommendations resulting from
               the detailed feasibility studies of each crop performed by its Economic
               Research Service and on recommendations from its regional service
               offices regarding producer and private company interest.

               Because USDA considers a number of factors in addition to interest when
               selecting a crop to review, it may not ultimately develop an insurance
               program for each of the crops on the list. For example, adequate producer
               participation is required for a crop insurance program to be actuarially
               sound. Before implementing a new insurance program, USDA requires
               documentation showing that a minimum of 10 percent of the crop’s
               producers would be expected to participate in the insurance program.
               However, some new programs, once analyzed and properly rated to
               account for the risks involved, may be too expensive to obtain adequate
               producer participation. In such cases, USDA may suspend development
               activity. Furthermore, if a private sector insurance program is generally
               available, the Federal Crop Insurance Act of 1980 (P.L. 96-365, Sept. 26,


               1
                An agricultural statistics district is a contiguous group of counties with similar production practices
               within a state for which USDA’s National Agricultural Statistics Service collects and reports various
               crop information.



               Page 26                                                  GAO/RCED-99-67 Specialty Crop Insurance
Appendix III
Factors USDA Considers When Selecting
Crops to Review for Insurance




1980) as amended, prohibits USDA from implementing a competing
insurance program.

In addition, sufficient data must be available to develop an insurance
program, including production history, pricing information, an analysis of
perils, an analysis of marketing channels, and other pertinent information.
Generally, USDA obtains this information from producers, but it often
obtains information from other sources, including producer associations
and land grant universities. If this information is not available or cannot be
created, the development of an actuarially sound insurance program may
not be feasible.

Once crops are selected, the order in which new programs are ready for
initial pilot testing can change because of the varying lengths of
development cycles. For example, the development of an insurance
program for aquaculture—a large and diverse national program for the
commercial production of fish—began in 1994, and the development of an
insurance program for wild rice began in early 1998. However, because of
the complexity of developing the aquaculture program, it will not be ready
for implementation until 2000, while the wild rice program, a relatively
simple program, was approved for pilot testing for 1999.

The eight new crop insurance programs USDA is offering in 1999 meet
various priority selection criteria. For example, three of the
programs—cabbage, cherries, and watermelons—each exceed $30 million
in total U.S. economic value. Two other crop programs—crambe and
mustard—are being offered because the crops can be included in a crop
rotation cycle with wheat to lessen the impact of the scab disease
occurring in North Dakota and surrounding areas. The remaining three
crop programs meet other criteria, including legislative mandates and
readily available data. In addition, many of the crops scheduled for pilot
testing in 2000 or later years have a U.S. economic value exceeding
$30 million, such as aquaculture, cucumbers, and strawberries. Table III.1
shows the 31 crops USDA is considering for pilot testing as of March 1999.




Page 27                                   GAO/RCED-99-67 Specialty Crop Insurance
                                         Appendix III
                                         Factors USDA Considers When Selecting
                                         Crops to Review for Insurance




Table III.1: Crops Scheduled for Pilot
Testing, by Year                                                    Year pilot program estimated to begin
                                                                                                         2002 and beyond
                                              a
                                         2000                     2001
                                         Aquaculture              Blackberries           Artichokes                 Floriculture
                                         Beans (fresh)            Raspberries            Asparagus                  Garlic
                                         Buckwheat                                       Bananas                    Hazelnuts
                                         Chile peppers                                   Beets (red)                Hops
                                         Cucumbers                                       Broccoli                   Lettuce
                                         Mint                                            Carrots                    Mushrooms
                                         Strawberries                                    Cauliflower                Olives
                                                                                         Celery                     Pineapple
                                                                                         Coffee                     Sesame seed
                                                                                         Dates                      Spinach
                                                                                         Eggplant                   Timber
                                         a
                                          In 2000, pumpkins will be added on a pilot basis to the already available winter squash crop
                                         insurance program and therefore, are not included in this list.

                                         Source: GAO’s analysis of USDA’s data.



                                         Furthermore, USDA has received requests for 10 additional crops for which
                                         development has not yet begun. These 10 crops are amaranth, chicory,
                                         kenaf, lupins, onion seed, ramie, bahia, spelt, turnip roots, and various
                                         herbs.




                                         Page 28                                               GAO/RCED-99-67 Specialty Crop Insurance
Appendix IV

Characteristics of Specialty Crops Affect
Insurance Risk

                        While the diverse nature of specialty crops makes describing their
                        insurance risks difficult, they often tend to have several key
                        characteristics in common that differentiate them from the insurance risks
                        presented by nonspecialty crops. These key characteristics are (1) greater
                        market price risk, (2) unique production risks, (3) a strong relationship
                        between crop prices and farm-level yields, and (4) the manner in which
                        risk has traditionally been managed. These characteristics often derive
                        from the high perishability of many specialty crops.


                        For many specialty crops, market price risk is a more important factor
Specialty Crops Often   than production risk, which is not the case for most nonspecialty crops.
Experience Greater      Unlike nonspecialty crops, specialty crops are generally highly perishable,
Market Price Risk       often do not store well, and frequently experience greater price volatility.
                        Because of specialty crops’ perishability, it is difficult for producers to
Than Nonspecialty       adjust to short-run shifts in supply and demand other than by raising or
Crops                   lowering the price. Consequently, many specialty crops, such as fresh
                        market fruits and vegetables, experience a greater degree of price
                        volatility than nonspecialty crops during the growing season. Conversely,
                        because producers can store nonspecialty crops, they can often sell their
                        crop at the most opportune time. Furthermore, unlike most nonspecialty
                        crops, most specialty crops are not traded on commodity exchanges,
                        which precludes producers from using these markets to hedge price risk.


                        While many specialty crops experience greater market price risk because
Production Risks for    they are more perishable than nonspecialty crops, other specialty crops
Many Specialty Crops    have fewer production risks, decreasing the need for federal crop
Differ From Those of    insurance. For instance, because many specialty crops are irrigated, they
                        are not subject to drought, which is one of the most significant perils for
Nonspecialty Crops      nonspecialty crops. Certain crops, such as strawberries and tomatoes, can
                        produce fruit for several weeks, reducing the risk that the producer may
                        not be able to harvest because of excess moisture or other perils.
                        Similarly, vegetable producers often tend to grow more than one kind of
                        vegetable during the year or have multiple plantings of the same crop
                        during the growing season. Furthermore, many specialty crops are
                        perennials, such as tree and vine crops, which produce fruit or nuts year
                        after year without replanting. Because a loss normally affects only the fruit
                        or nuts and not the tree or vine, the producer need only to insure for the
                        value of the crop, not the value of the trees or vines.




                        Page 29                                  GAO/RCED-99-67 Specialty Crop Insurance
                       Appendix IV
                       Characteristics of Specialty Crops Affect
                       Insurance Risk




                       In terms of production costs, specialty crops have total production costs
                       per acre that are higher than those for nonspecialty crops. Therefore, for
                       specialty crops that have high production costs as well as high harvest
                       costs, such as strawberries, insurance liability can be limited by insuring
                       only those costs that are preharvest. As a result, if a loss occurs prior to
                       harvest for a specialty crop, the producer has not yet incurred much of the
                       production costs, reducing the need to be insured for the total value of the
                       crop.


                       As we discussed in 1998,1 the relationship between crop prices and
Relationship Between   farm-level yields is an important component of risk assessment because an
Price and Yield Is     increase in price caused by a decline in aggregate crop yields can
Stronger for Some      compensate for the effects of decreased production. This tends to be the
                       case when production areas are geographically concentrated. Although
Specialty Crops Than   negative price-yield relationships are observed for both specialty and
for Nonspecialty       nonspecialty crops, for some specialty crops this negative price-yield
                       relationship is much stronger. For example, for some specialty crops,
Crops                  80 percent of production may be grown in one county in the United States.
                       Therefore, if production in this county decreases, prices can rise
                       dramatically and total revenues at the farm level may stay the same or
                       even increase. That is, while the producer may face greater price
                       variability for growing certain specialty crops, the producer may also
                       experience a positive revenue effect because of the higher price-yield
                       relationship. At the same time, other specialty crops, such as apples, do
                       not have this strong negative relationship between prices and yields. For
                       instance, for apples, because of the diversity in the location of production,
                       a shortage in one part of the country can be replaced by greater
                       production in another part, mitigating the strength of the price-yield
                       relationship for this crop.


                       The need for federal crop insurance for specialty crops is reduced because
Specialty Crop         of another characteristic prevalent in their markets—the use of vertical
Producers Manage       arrangements such as “producer-processor” contracting to manage both
Risk Through Various   price and production risk. In general, vertical arrangements are the result
                       of market incentives, including risk reduction and the avoidance of
Types of Vertical      processors’ market power,2 that encourage producers to integrate their
Arrangements           operations to include the processing and marketing of their own
                       1
                         Crop Revenue Insurance: Problems With New Plans Need to Be Addressed (GAO/RCED-98-111,
                       Apr. 29, 1998).
                       2
                        Market power in this case relates to the ability of large buyers or processors to influence the price
                       that they pay to producers for specialty crops.



                       Page 30                                                  GAO/RCED-99-67 Specialty Crop Insurance
Appendix IV
Characteristics of Specialty Crops Affect
Insurance Risk




production. These “producer-processor” relationships can include
producers owning marketing and shipping facilities, but they mainly
consist of various types of contractual arrangements. For instance, the
processing industry for tomatoes in California transacts nearly its entire
production through producer-processor contracts. This arrangement
reduces risk to the producer and the processor by predetermining a
specific price, for a certain variety of tomato, at a specific delivery date.
Such coordination of production and marketing is especially advantageous
in terms of managing the flow of product in periods of oversupply and low
prices, which are common in these industries. Moreover, because many
specialty crop producers may not be able to integrate unilaterally, many
integrate collectively by forming marketing cooperatives that are active in
such functions as storage and processing. Examples of such marketing
cooperatives include Sunkist (citrus), Sunsweet (prunes), Calavo
(avocados), Sunmaid (raisins), Blue Diamond (almonds), and Diamond
Walnut. In California, these marketing cooperatives control half or more of
the market volume of these crops.




Page 31                                     GAO/RCED-99-67 Specialty Crop Insurance
Appendix V

Major Specialty Crop Insurance Plans and
Methods Used to Calculate Premiums

                           Although many variations exist, the three major categories of specialty
                           crop insurance are (1) yield (production), (2) revenue insurance, and
                           (3) percent-of-damage. In addition, USDA is piloting a new type of plan in
                           1999 known as the adjusted gross revenue plan. USDA also uses three types
                           of rating methods to calculate premiums for specialty crops. The methods
                           are comparative rating, statistical modeling, and experience rating. For
                           each of these plans, as well as the rating methods, USDA has to customize
                           the insurance for a given crop. For example, a yield plan for one specialty
                           crop would have a different premium structure than the plan for another
                           crop. This is generally not the case for nonspecialty crops covered by
                           federal crop insurance.


                           This section discusses the types of crop insurance plans currently offered
Several Types of Crop      or being piloted by USDA. The plans are yield, revenue, and
Insurance Plans Are        percent-of-damage.
Available
Yield Insurance Is the     For specialty crops, USDA offers three types of yield plans—the actual
Predominant Type of Plan   production history, grower yield certification, and dollar plans. Together,
                           these plans account for a majority of all specialty crop insurance offered
                           by USDA. These three plans guarantee payments on the basis of lost yield.

                           The actual production history plan is the most widely used insurance for
                           specialty crops. Generally, premiums under this plan are calculated
                           similarly for both specialty and nonspecialty crops. The plan guarantees
                           payments that are based on a percentage of the individual producer’s
                           historical yield multiplied by a percentage of a preestablished market
                           price. As with actual production history plans for nonspecialty crops, the
                           specialty crop producer’s premium is generally calculated on the basis of
                           one of nine categories for yield amounts (known as yield spans). The
                           premium rate charged to the producer is based on the yield span in which
                           the producer’s actual production history yield falls and the chosen
                           coverage level—the percent of production that is to be protected.

                           Like the actual production history plan, the grower yield certification
                           plan—sometimes classified as a subset of the actual production history
                           plan—is based on a certain yield per acre. However, in a grower yield
                           certification plan, USDA has set up mapping areas—counties or larger
                           areas—in which the yield guarantee is based on the average historic yield
                           in the producer’s geographic area, instead of a producer’s individual
                           average historic yield. Therefore, all insured producers in a county or



                           Page 32                                  GAO/RCED-99-67 Specialty Crop Insurance
Appendix V
Major Specialty Crop Insurance Plans and
Methods Used to Calculate Premiums




designated mapping area receive the same premium rate. Unlike an actual
production history plan, a grower yield certification plan has no yield
spans for determining premium rates. Under this plan, a claim is paid if a
producer’s yield falls short of the expected yield times the selected
coverage level. For some crops, however, USDA found that there is enough
variability in yields to establish a limited number of yield spans under this
plan. In addition, these crops are being converted from grower yield
certification plans to actual production history plans, as appropriate.

The dollar plan insures certain specialty crops that have fairly consistent
costs of production for expenses that are incurred prior to harvest.
Therefore, in the event of a crop failure, all producers in a county that
participate in this program would be compensated for these preharvest
expenses. For each type of crop in a county, the insured guarantee is a
fixed dollar amount per acre, reflecting the USDA-calculated preharvest
costs of production. USDA bases this fixed dollar amount on the cost of
production, expected market prices, and yield information, and often
obtains these data from university extension programs. Producers can
insure their crop for between 50 and 75 percent of this fixed dollar
amount. Because the price of some specialty crops fluctuates
considerably, crop revenues are also taken into account to prevent
insuring for more than the expected crop return.

When insurance claims are settled under the dollar plan, the fixed-dollar
guarantee is compared with the dollar value of production, that is, the
crop yield times the higher of a USDA price or a market price. If the dollar
value of production is less than the fixed-dollar guarantee, the producer
receives an insurance payment. In order to receive a payment under this
plan, however, the producer must have had a crop loss. When claims are
paid for losses, they are adjusted to reflect reduced protection if the crops
are destroyed at a stage earlier than harvest. Examples of crops covered
under the dollar plan are fresh market tomatoes, peppers and sweet corn.

While most specialty crops are insured under one of these three plans,
certain crops can be insured under more than one, depending upon such
factors as the availability of data in the area and the perceived risks by
local USDA representatives.




Page 33                                    GAO/RCED-99-67 Specialty Crop Insurance
                            Appendix V
                            Major Specialty Crop Insurance Plans and
                            Methods Used to Calculate Premiums




Revenue Insurance Plans     Unlike traditional yield coverage, the revenue insurance plan protects
Protect Against Losses in   producers from declines in revenue caused by low prices, low yields, or
Revenue That Are Due to     both. In a revenue insurance plan, the guarantee is a producer-chosen
                            percentage (coverage level) of the expected revenue for that particular
Low Yields or Low Prices    crop in the market. To establish the preseason revenue guarantee, USDA
                            collects information on the producer’s individual production history and
                            the county average price for the specialty crop.

                            While the revenue insurance plans for nonspecialty crops are more
                            applicable to a broader range of crops, the plans for specialty crops have
                            to be customized for the unique characteristics of each crop. For example,
                            USDA has developed pilot revenue insurance plans of limited scope and
                            duration for avocados and pecans.

                            In 1999, USDA began pilot testing a new type of revenue insurance policy,
                            called adjusted gross revenue, in selected counties in Florida, Maine,
                            Massachusetts, Michigan, and New Hampshire. This new insurance plan
                            will provide a producer with a guaranteed level of income as determined
                            by the producer’s reported farm income for the past 5 years. It will also
                            provide coverage for both specialty and nonspecialty crops as well as
                            some livestock.


Tree and Nursery Crops      USDA  insures certain fruit crops, trees, and nursery crops, or other
Are Covered by              perennial crops, with a percent-of-damage plan. There are two different
Percent-Of-Damage           versions of this plan—the “lost quantity” and the “lost value” plans. In
                            both, payments are made when a measured amount of damage exceeds
Insurance Plans             some predetermined deductible. The guarantee for the “lost quantity” plan
                            is based on a percent of damage to the crop, such as damage to a whole
                            tree or to limbs on a tree. USDA must pay an indemnity when the percent of
                            damage, as evaluated by the quantity of totally or partially destroyed
                            property (fruit crop or trees), exceeds the deductible. For the “lost value”
                            plan, the guarantee is based on a dollar amount of protection times a
                            coverage level. USDA pays indemnities when the percent of dollar damage
                            exceeds a deductible. Examples of crops covered under variations of this
                            plan include Florida citrus fruit, Florida and Texas citrus trees,
                            macadamia trees, and nursery plants.


                            Premium rate-setting methods used in the insurance plans for specialty
Methods Used to Set         crops include the comparative rating, experience rating, and statistical
Premium Rates for
Specialty Crops

                            Page 34                                    GAO/RCED-99-67 Specialty Crop Insurance
Appendix V
Major Specialty Crop Insurance Plans and
Methods Used to Calculate Premiums




modeling methods. In general, rating methods for specialty crops tend to
be customized for each crop and location.

Comparative rating, also called judgmental rate setting, is used whenever
the available data are thin or scanty. Generally, some amount of data can
be found for a crop in an area, but the scope of the data are not adequate
to measure the probable losses under a variety of weather conditions. In
such cases, the available data are compared with the insurance experience
for crops that have been insured in the area. A judgment as to the relative
riskiness is needed: that is, is the crop in question relatively more or less
risky than the crop with more adequate data? A premium rate is then
established by using the existing premium rates for the reference crop or
crops as a benchmark.

For the experience rating method, USDA considers only the actual
insurance experience of a crop and uses only those data to compute the
required premium rate. One example of this method is the calculation of
loss-cost ratios to develop premium rates. Briefly, USDA uses average
coverage and production data, among other things, to calculate a loss-cost
ratio—claims payments divided by liabilities. In order to adequately reflect
future losses, many years of historical loss data are typically needed.

Statistical modeling uses empirical or assumed probability distributions of
key variables and draws thousands of observations from those
distributions. At the end of the analysis, the events that resulted in a loss
are totaled and divided by the total liability at risk. The result is an
estimated premium rate. For example, USDA used statistical modeling to
determine rates for the pilot revenue insurance plans for avocados and
pecans. Simply put, the premium rates offered in these plans are
developed through statistical models that construct a revenue
distribution—a depiction of expected farm revenues—on the basis of
actual price and yield data. In addition, USDA used statistical modeling in
order to set rates for fruit trees in Florida, a program that provides
insurance coverage for physical damage to the trees.




Page 35                                    GAO/RCED-99-67 Specialty Crop Insurance
Appendix VI

Comments From the U.S. Department of
Agriculture

Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.




                             Page 36   GAO/RCED-99-67 Specialty Crop Insurance
                      Appendix VI
                      Comments From the U.S. Department of
                      Agriculture




Now on p. 1.
See comment 1.



Now on pp. 2 and 4.
See comment 1.

Now on p. 2.
Now on p. 6.
See comment 2.




Now on p. 2.
See comment 3.
Now on p. 5.



Now on p. 3.
See comment 1.



Now on p. 4.
Now app. I.
See comment 1.
Now on p. 5.
See comment 4.




                      Page 37                                GAO/RCED-99-67 Specialty Crop Insurance
                        Appendix VI
                        Comments From the U.S. Department of
                        Agriculture




Now on pp. 6-7.


See comment 5.




Now on p. 9.
See comment 1.




Now on p. 12.
See comment 6.



Now on pp. 18 and 19.

Now app. I.
See comment 1.



Now on p. 20.
See comment 1.

Now app. III, p. 26.
See comment 1.

Now app. III, p. 26.
See comment 1.




                        Page 38                                GAO/RCED-99-67 Specialty Crop Insurance
                       Appendix VI
                       Comments From the U.S. Department of
                       Agriculture




Now app. III. p. 27.
See comment 1.


Now on p. 32.
See comment 1.




Now app. V, p. 33.
See comment 1.




Now app. V, p. 34.
See comment 1.



Now on p. 34.
See comment 1.




Now app. V, p. 33.
See comment 1.


Now on p. 33.
See comment 1.




                       Page 39                                GAO/RCED-99-67 Specialty Crop Insurance
                       Appendix VI
                       Comments From the U.S. Department of
                       Agriculture




Now on p. 33.
See comment 1.


Now app. III, p. 34.
See comment 1.

Now app. III, p. 35.
See comment 1.



Now app. IV.

See comment 7.




Now app. V.

See comment 8.




                       Page 40                                GAO/RCED-99-67 Specialty Crop Insurance
                 Appendix VI
                 Comments From the U.S. Department of
                 Agriculture




See comment 9.




                 Page 41                                GAO/RCED-99-67 Specialty Crop Insurance
                 Appendix VI
                 Comments From the U.S. Department of
                 Agriculture




                 1. We agree. The final report was revised to reflect USDA’s comment, as
GAO’s Comments   appropriate.

                 2. We agree and have revised our report to state that the 5 years includes
                 the testing phase of the development process. Also, while we recognize
                 that USDA developed the adjusted gross revenue insurance plan for pilot
                 testing in 14 months, other plans may require longer than 2 years to reach
                 pilot testing, as we discuss in appendix III of our report. For example, the
                 aquaculture plan is in its fifth year of development and has yet to begin
                 testing.

                 3. We agree and acknowledge in our report that the adjusted gross revenue
                 plan, if successful, will provide coverage for all specialty and nonspecialty
                 crops.

                 4. We do not believe table 2 of our report is misleading. While crop
                 insurance participation was required in 1995 as a condition of eligibility for
                 certain federal farm programs, participation in recent years has declined,
                 as table 2 shows. In October 1998, the Congress passed major ad hoc
                 disaster assistance legislation because of losses in the Plains States but
                 also because of insufficient participation in the crop insurance program.

                 5. We agree that since 1994, in addition to developing insurance programs
                 for specialty crops, USDA’s resources have also been used to develop
                 insurance programs for nonspecialty crops. Thus, we have added this
                 information to our report.

                 6. We agree that the timing of premium increases may influence their
                 acceptance. However, this is one of many factors, such as the level of debt
                 for the farm, held constant in our analysis.

                 7. We agree and have revised our report to reflect the fact that we are
                 focusing on several key characteristics of specialty crops that differentiate
                 them from the insurance risks presented by nonspecialty crops. These
                 characteristics often derive from the perishable nature of most specialty
                 crops.

                 8. We agree it is more appropriate to use the terms comparative rating,
                 experience rating, and statistical modeling and have revised our report
                 accordingly.




                 Page 42                                  GAO/RCED-99-67 Specialty Crop Insurance
Appendix VI
Comments From the U.S. Department of
Agriculture




9. We agree that USDA’s authority to offer revenue insurance plans is
limited by the Federal Crop Insurance Act to a pilot program basis. Thus,
we revised our report to reflect this limitation.




Page 43                                 GAO/RCED-99-67 Specialty Crop Insurance
Appendix VII

Major Contributors to This Report


               Robert C. Summers, Assistant Director
               Thomas M. Cook, Evaluator-in-Charge
               Charles W. Bausell, Jr.
               Carol E. Bray
               Ruth Anne Decker
               Barbara J. El Osta
               Carol Herrnstadt Shulman




(150125)       Page 44                                 GAO/RCED-99-67 Specialty Crop Insurance
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