USDA IG Report: Prevented Planting Policies Go Too Far

September 19, 2013 03:45 AM
 

via a special arrangement with Informa Economics, Inc.

Pays farmers too much, discourages them from planting second crops


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


U.S. farm subsidies are getting a renewed focus in Washington, with the latest review coming from USDA's inspector general (IG) who released a report that said the prevented planting coverage provided through the federal crop insurance system pays farmers too much and discourages them from planting second crops. Link to report.

The payments farmers receive exceed the costs they put into preparing the crop, and the difference varies widely by commodity. The coverage levels offered by USDA’s Risk Management Agency (RMA) exceed farmers' pre-planting costs by as much as 24 percent for corn and 13 percent for wheat.

The coverage discourages farmers from planting a second crop because of the impact that would have on their yield history for the purpose of calculating future premiums.

Prevented plantings are not counted against a farm’s Actual Production History, or APH, unless a second crop is seeded. The prevented planting payment for the first crop also is reduced.

RMA recently commissioned a study of the prevented-planting coverage to determine whether the payments are excessive. Any necessary changes would be effective in 2015. The agency has asked USDA's general counsel for a formal legal opinion on the APH issue.

The OIG report found that loss adjusters did not fully document and support eligibility for over $43 million in prevented planting payments. "RMA needs to improve its guidance to better hold approved insurance providers accountable and prevent acres that are regularly too wet for crop production from receiving prevented planting coverage," the report noted.


 

Outlined below is the Risk Management Agency’s (RMA) response to the subject report.


RECOMMENDATION NO. 1:
Obtain updated pre-planting cost information and use it to reevaluate the current coverage levels provided for prevented planting. Make any necessary changes to reduce program costs, where possible, and bring the coverage levels consistently in line with pre-planting costs for each crop.

RMA Response:
RMA does not believe the coverage levels are excessive on average and reflect increased producer costs before planting a crop, but RMA agrees with the recommendation. On July 3, 2013, RMA awarded a Prevented Planting Evaluation contract to determine if prevented planting payments currently offered under Federal crop insurance policies are appropriate when a producer is prevented from planting a crop, but not excessive to the extent that the coverage encourages producers not to plant. Any changes deemed necessary to reflect appropriate prevented planting payments will be determined by June 30, 2014, in order to be effective for the 2015 crop year.

RECOMMENDATION NO. 2:
Establish a schedule by which prevented planting coverage levels will periodically be reevaluated to ensure the levels remain in an appropriate and consistent relationship with pre-planting costs.

RMA Response:
RMA agrees with the recommendation. One of the deliverables for the Prevented Planting Evaluation contract is for the contractor to provide a methodology that will allow RMA to reevaluate prevented planting coverage levels to assure that the levels used will result in reasonable and adequate, but not excessive, prevented planting payments. By June 30, 2014, RMA will establish an appropriate schedule and update its procedures accordingly.

lt in reasonable and adequate, but not excessive, prevented planting payments. By June 30, 2014, RMA will establish an appropriate schedule and update its procedures accordingly.

RECOMMENDATION NO. 3:
Obtain a formal OGC opinion regarding whether RMA is prohibited from applying an assigned yield to prevented planting acreage and use it to calculate a producer’s Actual Production History (APH) when a second crop is not planted.

RMA Response:
RMA has already received an opinion from OGC on this matter that stated the current prevented planting yield procedures followed by RMA are consistent with statutory language. That response has been provided to OIG. However, RMA requested a formal legal opinion from OGC and when received, RMA will provide OIG with a copy of the document in response to this recommendation by September 15, 2013.

RECOMMENDATION NO. 4:
If OGC determines that an assignment of yield is not prohibited, evaluate what the proper yield assignment would be, and take appropriate action to implement the results.

RMA Response:
Upon receipt of OGC’s formal opinion, RMA will assess whether any assignment of yield is appropriate. However, based on previous OGC opinion and discussions of assignment of yields for APH purposes for prevented planting acreage, RMA does not anticipate this to be the likely outcome.

RECOMMENDATION NO. 5:
If OGC determines that an assignment of yield is prohibited, prepare a decision memorandum for consideration by the Secretary and follow up accordingly. The decision memorandum will review other potential actions that could be taken including seeking legislative change to allow RMA to apply an assigned yield to prevented planting acreage, and use it to calculate a producer’s APH when a second crop is not planted.

RMA Response:
Upon receipt of OGC’s legal opinion, RMA will finalize a decision memorandum for the Secretary. Once the decision memorandum has been acted upon, RMA will advise OIG accordingly.

RECOMMENDATION NO. 6:
Revise the Special Provisions of Insurance to replace language regarding normal weather determinations with another more objective standard to apply when determining if acres are available for planting. Initiate any regulatory action required to implement these revisions.

RMA Response:
RMA will modify the Special Provisions of Insurance for determining if acres are available for planting consistent with OIG's recommendation. This new objective standard will be incorporated for crops with a contract change date on or after November 30, 2013, effective for the 2014 crop year.


RECOMMENDATION NO. 7:
Ensure that any revisions in the prevented planting loss adjustment standards include specific instructions to require Approved Insurance Providers (AIPs) to document their determinations.


RMA Response:
The Prevented Planting Loss Adjustment Handbook (PP LASH) currently contains many references requiring supporting documentation, as well as the Loss Adjustment Manual (LAM) Standards Handbook, which is to be used in conjunction with the PP LASH. RMA will include specific instructions in the 2014 PP LASH to be issued in August 2013 requiring AIPs to maintain records (documents) as stated in the Standard Reinsurance Agreement and as described in the LAM Standards Handbook.


RECOMMENDATION NO. 8:
Issue guidance emphasizing that any quality control reviews that AIPs perform on prevented planting claims must include the verification that loss adjusters comply with Federal Crop Insurance Corporation procedures, including the completion of all required eligibility determinations and the inclusion of all supporting documents in the producer’s file.


RMA Response:
RMA agrees and will issue within the next six months a bulletin to all Approved Insurance Providers (AIPs) stating that in accordance with Appendix IV Quality Assurance and Program Integrity Requirements, all quality control reviews must include verification that loss adjusters comply with Federal Crop Insurance Corporation procedures, including the completion of all required eligibility determinations and the inclusion of all supporting documents in the producer’s file.


 

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


 


 

 

 

 

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