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Federal cuts to crop insurance subsidies raise brokers’ concerns

By Dan Verel, Business Journal Staff Reporter

Source: North Bay Business Journal


CALIFORNIA — Federal cuts to crop insurance premium subsidies totaling about $6.2 billion took effect July 1, and agencies and brokers that provide services to grape growers and other farmers in the state anticipate taking a sharp hit as a result.

“As an industry, obviously we’re not thrilled with what’s happening,” said Jordan Roach, vice president of Mary Roach Insurance Agency in Fresno, which provides crop insurance for about 40 wine grape growers in Sonoma and Napa counties.

The recent cuts, about 35 percent of the United States Department of Agriculture delivery cost for crop insurance, are in addition to another $6 billion cut from crop insurance in the 2008 farm bill. Mr. Roach and other crop insurance experts fear that the program is being used as a “piggy bank.”

“We are hopeful that Congress will acknowledge the cut that we have already made and any additional savings in the next farm bill should come from other areas,” he said.

“The cuts are certainly disappointing,” said Brandon Stegall, vice president of Wells Fargo Insurance Services in Sacramento. “I feel that brokers and agents took the brunt of the cuts that the feds were carving out of this program.”

“The next step is the feds might cut more, so will they cut the integrity going forward?” Mr. Stegall said. There is concern “that they’ll cut something more dramatic from the carriers’ side and that will impact the growers more significantly.”

Particularly impacted will be the smaller brokers and agencies that write primarily catastrophic coverage, Mr. Stegall said, a point Mr. Roach echoed.

“We’re still waiting for the dust to settle, and there will probably be some consolidation, as any business must work through revenue cuts,” said Mr. Roach, who appeared before the House Ag Subcommittee and General Farm Commodities and Risk Management to argue against the cuts.

Mr. Stegall said purchasers of crop insurance likely will not feel the cuts, and larger brokers such as Wells Fargo won’t be as severely impacted.

“The services we provide will not change, and I guess the main reason for that is the fact that the catastrophic coverage program took the biggest brunt of the reduction, and we don’t write a significant amount of CAT business,” he said.

Mr. Roach, who is also vice chairman of the Crop Insurance Professionals Association, said the cuts will likely lead to “unintended consequences,” and much of the impact could worsen over time when all is sorted out.

“Crop insurance is the only risk-management tool available to California growers of specialty crops such as grapes, citrus, nuts, stonefruit or avocados. They’ve opened the proverbial Pandora’s box,” he said.

One such consequence of the Standard Reinsurance Agreement, he said, was the decision to cap compensation.

“They’re capping compensation and the amount that agents and others involved can make, so how do you define compensation?” he said. “Turns out when the feds are involved with coming up with a definition it becomes more complicated.”

Further complicating matters, Mr. Roach said, agencies won’t know their reimbursement rates until well after grape growers and other farmers sign up for their policies, which must be done Jan. 31, 2011.

“We don’t know what we’re going to get paid because it’s a formula that won’t be determined until the end of the year,” he said. A national calculation on the rate formula will be completed by October 2011.

“How can independent and small business owners complete their annual budgets without knowing what they’re going to get paid?”

Mr. Stegall said some agricultural regions with higher price commodities that are more apt to take part in the catastrophic coverage plan could be impacted.

“Napa, Sonoma, Mendocino, the Central Coast, those areas have a particularly high percentage in the catastrophic program,” he said. “It’s not an inexpensive coverage when you start getting into the higher price commodities.”

In Sonoma County, more than 35,000 acres of wine grapes are insured, or about 62 percent of 56,000 bearing acres. In Napa, the ratio is roughly 51 percent of all grapes of 43,000 bearing acres, according to the USDA. Napa and Sonoma counties paid $2.6 million in crop insurance premiums, and more than $200 million in coverage was provided to growers last year, Mr. Roach said.




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