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Congressional Research Service 7-5700 www.crs.gov R40532 Summary The federal crop insurance program began in 1938 when Congress authorized the Federal Crop Insurance Corporation. The current program, which is administered by the U.S. Department of Agriculture's Risk Management Agency (RMA), provides producers with risk management tools to address crop yield and/or revenue losses for about 130 crops. The federal farm safety net also includes the farm commodity support programs, which provide price and income support for a much narrower list of "covered and loan commodities" such as corn, wheat, rice, and peanuts. In purchasing a crop insurance policy, a producer growing an insurable crop selects a level of coverage and pays a portion of the premium—or none of it in the case of catastrophic coverage—which increases as the level of coverage rises. The federal government pays the rest of the premium (62%, on average, in 2014). Insurance policies are sold and completely serviced through 18 approved private insurance companies. As spelled out in a Standard Reinsurance Agreement (SRA), the insurance companies' losses are reinsured by USDA, and their administrative and operating costs are reimbursed by the federal government. In 2014, federal crop insurance policies covered 294 million acres. Major crops are covered in most counties where they are grown. Four crops—corn, cotton, soybeans, and wheat—typically account for more than 70% of total acres enrolled in crop insurance. Most crop insurance policies are either yield-based or revenue-based. For yield-based policies, a producer can receive an indemnity if there is a yield (production) loss relative to the farmer's "normal" (historical) yield. Revenue-based policies protect against crop revenue loss resulting from declines in yield, price, or both. Other insurance products protect against losses in whole farm revenue (rather than just for an individual crop) or gross margins for livestock enterprises. Government costs for crop insurance have increased substantially during the last decade. After ranging between $2.1 billion and $3.9 billion during FY2000-FY2007, costs rose to $7 billion in FY2009 as higher policy premiums from rising crop prices drove up premium subsidies to farmers and expense reimbursements (which are based on total premiums) to private insurance companies. Costs peaked at $14.1 billion in FY2012 when crop prices surged again and poor weather resulted in program losses. With a return to more favorable weather and smaller crop losses, total program costs declined to $6.0 billion in FY2013 and were $8.7 billion in FY2014. Federal outlays for crop insurance exceed those for the farm commodity support programs, making crop insurance the most significant cost component of the farm safety net and a potential target for deficit reduction. Insurance companies, farm groups, and some Members of Congress are concerned that any reductions in federal support could negatively impact the financial health of the industry and possibly jeopardize the delivery of crop insurance to farmers. Supporters of federal crop insurance do not want to make changes that would adversely affect farmer participation, policy coverage, or industry interest in selling and servicing insurance products to farmers. Critics argue that premium subsidies are higher than necessary for farmers to adequately protect themselves, and significant federal dollars could be saved if subsidies were lowered. From a farm policy standpoint, policymakers and observers alike remain concerned about how the crop insurance program interacts with farm commodity support programs and whether together they help farmers deal with business risk at a cost that is acceptable to taxpayers. In the 2014 farm bill (P.L. 113-79), Congress expanded the federal crop insurance program by authorizing additional policies and requiring examination of potential new products, including those that would benefit specialty crops and animal agriculture. These changes are summarized in CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79). Contents Crop Insurance History 1 Program Basics 2 Policy Availability 4 Regions Without Coverage 5 Enhancing Existing Coverage 5 Actuarial Soundness 6 Types of Insurance 6 Yield-Based Insurance 6 Revenue-Based Insurance 10 Whole Farm Revenue Protection (WFRP) 10 Geographic Distribution of Program Participation and Indemnities 10 Crop Insurance Premium Subsidies 12 Distribution of Producer Subsidies 13 Federal Program Costs 16 Standard Reinsurance Agreement (SRA) 18 Administrative and Operating (A&O) Reimbursement 18 Private Company Risk Sharing 18 Trends in A&O Reimbursement and Underwriting Gains 20 Crop Insurance in the 2014 Farm Bill 21 Policies for "Shallow Losses" 21 "Yield Exclusion" for Yield Guarantee 22 New Products 22 Conservation Compliance 22 Costs 23 Views on Federal Crop Insurance 23 Figures Figure 1. Federal Crop Insurance Program 3 Figure 2. Insured Acres by Crop Year 4 Figure 3. Types of Crop Insurance Policies 7 Figure 4. Acres Enrolled in Crop Insurance, 2012 11 Figure 5. Crop Insurance Indemnities in 2014 12 Figure 6. Estimated Average Crop Insurance Premium Subsidy Per Farm in 2013 14 Figure 7. Crop Insurance Premium Subsidies by Crop in 2013 14 Figure 8. Crop Insurance Premium Subsidies for Top 20 States in 2013 15 Figure 9. Locations of Participating Farmers Receiving Premium Subsidies of More Than $40,000 in 2011 16 Figure 10. Government Cost of Federal Crop Insurance 17 Figure 11. Risk Sharing for the Commercial Fund 20 Tables Table 1. Crop Insurance Premium Subsidies 12 Table 2. Government Cost of Federal Crop Insurance 17 Table 3. Share of Crop Insurance Company's Gains/Losses by Fund and Loss Ratio 19 Table 4. Federal Crop Insurance Program and Company Data 20 Contacts Author Contact Information 23 Acknowledgments 24 For many farmers, federal crop insurance is the most important component of the farm safety net, given the breadth of commodity coverage, from apples to wheat, and the capability to reimburse producers for crop losses. The federal crop insurance program makes available subsidized policies to help farmers manage risk associated with natural disasters, including drought, excess moisture, and other perils. The average annual federal cost is approximately $8 billion. This report provides a primer on the federal crop insurance program and highlights changes to the program by the 2014 farm bill (P.L. 113-79). For details on crop insurance in the farm bill, see CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79). The farm safety net also includes the farm commodity support programs, which provide price and income support for a much narrower list of "covered and loan commodities" such as corn, soybeans, wheat, rice, and peanuts. Agricultural disaster programs are available for producers owning livestock or fruit trees. For information on these programs, see CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79), and CRS Report RS21212, Agricultural Disaster Assistance. For an overview of the entire farm safety net, see CRS Report R43758, Farm Safety Net Programs: Background and Issues, and CRS Report IF10191, Overview of Farm Safety Net Programs. Crop Insurance History Farming is generally regarded as a financially risky enterprise. Most agricultural production is subject to the vagaries of weather, and shifts in agricultural supply and demand often result in volatile market prices. Farm financial risk, periods of low returns, and the importance of agriculture in the nation's economy during the early to mid-1900s led to the development of federal policies that financially supported farmers, primarily through commodity price mechanisms. Today's farm commodity policies—authorized in the 2014 farm bill—have their roots in the 1930s. During the same era, Congress also first authorized federal crop insurance as an experiment to address the effects of the Great Depression and crop losses seen in the Dust Bowl. In 1938, the Federal Crop Insurance Corporation (FCIC) was created to carry out the program, which focused on major crops in major producing regions. The availability of federal crop insurance remained limited until passage of the Federal Crop Insurance Act of 1980 (P.L. 96-365), which expanded crop insurance to many more crops and regions of the country. Congress enhanced the crop insurance program, including greater subsidy levels, in 1994 and again in 2000 in order to encourage greater participation. The changes also expanded the role of the private sector in developing new products that would help farmers manage their risks. Today, many banks, when making operating loans, require that farmers purchase crop insurance. The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.). It is periodically modified. For example, Congress chose to revise the statute in the 2008 farm bill (P.L. 110-246) to achieve budget savings and to supplement crop insurance with a permanent disaster payment program. The 2014 farm bill (P.L. 113-79) expanded the program and increased budget outlays. The U.S. Department of Agriculture's (USDA's) Risk Management Agency (RMA) operates and manages the FCIC. Program Basics The federal crop insurance program provides producers with risk management tools to address crop yield and/or revenue losses on farms. Guarantees are established just prior to planting, based on historical yields and expected market prices (not statutory prices used in farm programs). Insurance policies are sold and completely serviced through 18 approved private insurance companies. Independent insurance agents are paid sales commissions by the companies. The insurance companies' losses are reinsured by USDA, and their administrative and operating costs are reimbursed by the federal government (see Figure 1 and "Federal Program Costs," below). In purchasing a policy, a producer growing an insurable crop selects a level of coverage and pays a portion of the premium, which increases as the level of coverage rises. The remainder of the premium is covered by the federal government (about 62% of total premium, on average, is paid by the government). In the case of catastrophic coverage, the government pays the full premium. Also, the government, not the farmer, pays for the cost of selling and servicing all policies. In the absence of premium subsidies and free delivery, farmer participation in the crop insurance program and/or purchased coverage levels would be lower. A major benefit for producers is the timely payment for crop losses (about 30 days after the farmer signs the claim form). In 2014, crop insurance policies covered 294 million acres (Figure 2). Major crops are insurable in most counties where they are grown, and approximately 83% of U.S. crop acreage is insured under the federal crop insurance program. Four crops—corn, cotton, soybeans, and wheat—typically account for more than 70% of total enrolled acres. For these major crops, a large share of plantings is covered by crop insurance. In 2014, the portion of total corn acreage covered by federal crop insurance was 87%; cotton, 96%; soybeans, 88%; and wheat, 84%. Policies for less widely produced crops are available in primary growing areas. Examples include dry peas, blueberries, citrus, pumpkins, and walnuts. In total, policies are available for about 130 crops (including coverage on a variety of fruit trees, nursery crops, pasture, rangeland, and forage). Figure 1. Federal Crop Insurance Program Source: CRS, adapted from U.S. Department of Agriculture and industry sources. Figure 2. Insured Acres by Crop Year Source: U.S. Department of Agriculture, Risk Management Agency. Many specialty crop producers depend on crop insurance as the only "safety net" for their operation, unlike field crop producers, who are also eligible for farm commodity program payments. In the specialty crop category, insured acreage as a share of total acreage is 73% for fruits and nuts and 32% for vegetables. Crop insurance is not necessarily limited to crops. Relatively new or pilot programs protect livestock and dairy producers from loss of gross margin or price declines. Livestock producers can also insure against hay and forage losses through the Pasture, Rangeland, and Forage program, which uses a rainfall index or vegetative index to determine loss. A pilot program began in 2014 for annual hay production in North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, and Texas. Policy Availability The availability of crop insurance for a particular crop in a particular region is an administrative decision made by USDA. The decision is made on a crop-by-crop and county-by-county basis, based on farmer demand for coverage and the level of risk associated with the crop in the region, among other factors. Developing new products can be costly, and a significant challenge is obtaining credible data (yield and price) to create an actuarially sound product. The process usually starts with a pilot program, which is conducted for about three years in order for RMA to gain experience and test the program components before it becomes more widely available. Alternatively, a policy can be reviewed and later discontinued if it fails to perform at an acceptable level (e.g., low participation or high losses). Some policies remain as a pilot for years. For example, the forage (alfalfa) seed insurance policy was introduced in 2002 as a pilot program to provide insurance coverage to alfalfa seed farmers. On May 29, 2014, USDA announced that it would be converted to a permanent policy for the 2015 crop year. During the pilot period, USDA determined an insurance need for hybrid production and made a program change to provide coverage for growers contracting for production of hybrid alfalfa seed. Regions Without Coverage In regions where a policy is not available, farmers may request from the appropriate regional office that RMA expand the program to their county. A producer also may request insurance coverage under a written agreement, which is a document designed to provide crop insurance for insurable crops when coverage or rates are unavailable. When crop insurance is not available, USDA's noninsured crop disaster assistance program (NAP) provides the equivalent of catastrophic coverage (for yield losses greater than 50%) if purchased by the producer. Additional coverage (for yield losses greater than 35%) has been made available by the 2014 farm bill. To be eligible for a NAP payment, a producer first must apply for coverage under the program by the application closing date, which varies by crop, but is generally about 30 days prior to the final planting date for an annual crop. As with catastrophic crop insurance, NAP applicants pay an administrative fee (currently $250 per crop). No premiums are required. Enhancing Existing Coverage RMA also regularly responds to requests from commodity organizations or industry representatives for enhancements to existing coverage, such as adding revenue coverage and organic practice coverage or trend yield adjustments to better reflect a producer's liability. In some cases, RMA has not pursued policies for particular commodities because producers have expressed concerns that offering insurance could adversely affect the market (i.e., because an insurance policy reduces producer risk, farmers may plant more acreage, which could drive down prices and total crop revenue). This has been a concern for many vegetable crops and explains in part lower levels of insured vegetable acreage compared with other crops. Actuarial Soundness Current law requires that RMA strive for actuarial soundness for the entire federal crop insurance program (that is, indemnities should equal total premiums, including premium subsidies). As a result, RMA must set premium rates to only cover expected losses and a reasonable reserve. The agency is also required to conduct periodic reviews of its rate-setting methodology, which sets premium rates according to the average historical rate of loss (e.g., if policies pay out 10% of their value, on average, then the rate should be 10%). Based on a review completed in July 2011, RMA adjusted its methodology for several major commodities to give more weight to recent years and to make other changes. Types of Insurance Federal crop insurance policies are generally either yield-based or revenue-based. For most yield-based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer's "normal" (historical) yield. Revenue-based policies were developed after yield-based policies, in the mid-1990s, to protect against crop revenue loss resulting from declines during the growing season in yield, price, or both. The most recent addition has been products that protect against losses in whole farm revenue rather than just for an individual crop. For both yield- and revenue-based policies, the price used to set the guarantee is based only on the expected price for the upcoming season, and is reset every year. This is in contrast to farm programs which either have price guarantees set in statute or use historical average prices and are designed to protect against longer-term price declines. These two basic forms—yield-based and revenue-based—are discussed below, followed by a brief explanation of whole farm insurance. The text boxes in this report titled "Crop Insurance Examples: Yield-Based vs. Revenue-Based" and "Federal Crop Insurance: Range of Coverage and Policies" explain program operation within the two broad categories. Slightly more than 1.2 million crop insurance policies were active in 2013, with revenue-based policies accounting for three-quarters of the total (Figure 3), and the remainder being yield-based policies. On a premium basis, revenue policies account for 84% of all policies. Yield-Based Insurance When purchasing a crop insurance policy, a producer is assigned (1) a "normal" crop yield based on the producer's actual production history, and (2) a price for his commodity based on estimated market conditions. The producer can then select a percentage of his normal yield to be insured and a percentage of the price he wishes to receive when crop losses exceed the selected loss threshold. The level of crop yield coverage is viewed by farmers as a critical feature of crop insurance, and a major determinant of whether a farmer will purchase insurance. Figure 3. Types of Crop Insurance Policies (policies earning premiums in 2014 = 1.2 million) Source: U.S. Department of Agriculture, Risk Management Agency. Notes: When calculated by share of premiums paid, yield-based policies account for 20% of total policies and revenue-based policies account for 80%. Index and "dollar" policies are included in yield-based total. In determining what a normal production level is for an insurable farmer, USDA requires the producer to present actual annual crop yields (usually stated on a bushel-per-acre basis) for the last 4 to 10 years. The simple average of a producer's annual crop yield over this time period then serves as the producer's actual production history (APH). If a farmer does not have adequate records, he can be assigned a transition yield (T-yield) for each missing year of data, which is based on average county yields for the crop. The most basic policy is called catastrophic (CAT) coverage. The premium for this level of coverage is completely subsidized by the federal government. The farmer pays an administrative fee for CAT coverage ($300 per crop per county), and in return can receive a payment on losses in excess of 50% of normal yield, equal to 55% of the estimated market price of the crop (called 50/55 coverage). Coverage levels that are higher than CAT are called "buy-up" coverage, and most farmers purchase buy-up policies because of the additional protection. For an additional premium paid by the producer, and partially subsidized by the government, a producer can "buy up" the 50/55 catastrophic coverage to any equivalent level of coverage between 50/100 and 75/100 (i.e., up to 75% of "normal" crop yield and 100% of the estimated market price). In limited areas, production can be insured up to the 85/100 level of coverage. The policy name depends on how pricing is determined for the crop. APH policies use a projected price determined by RMA, while Yield Protection policies use a projected price based on the commodity exchange markets. For example, polices are APH for plums and Yield Protection for wheat. Several other policies, including Area Yield Protection (formerly called Group Risk Plan) and Dollar Plan (see box), are not widely used but can be important for certain crops. Some of these policies use an area-wide index—such as county-level yield in the case of the Area Yield Protection—to measure losses. Crop Insurance Examples: Yield-Based vs. Revenue-Based Two basic forms of crop insurance are yield-based and revenue-based. Yield-based insurance provides an indemnity when the actual yield falls below the guarantee level. Revenue-based insurance provides an indemnity when the revenue (actual yield x price) falls below the guarantee. Actual Production History (APH) Example: A loss occurs when the bushels of soybeans produced for the insurance unit (insurable acreage) fall below the production guarantee as a result of damage from a covered cause of loss. Assumptions: "normal" production = 48 bushels / acre; yield coverage level = 75%; established price coverage = 100%; price election = $9.90 / bushel; actual production = 20 bushels per acre. 48 bushels per acre APH yield x .75 coverage level 36.0 bushel / acre guarantee - 20.0 bushels / acre actually produced 16.0 bushels / acre of covered loss x $9.90 per-bushel price election $158.40 per-acre gross indemnity payment - $6.00 estimated producer-paid premium per acre (varies) $152.40 per-acre net indemnity Revenue Product Example: 36.0 bushels / acre guarantee (see prior example) x $11.00 per-bushel base price (announced in March) $396.00 per-acre guarantee 20 bushels / acre actually produced x $10.00 per-bushel harvest price (announced in November) $200.00 per-acre revenue $196.00 per-acre gross indemnity payment ($396.00 - $200.00) - $13.00 estimated producer-paid premium (varies) $183.00 per-acre net indemnity Source: U.S. Department of Agriculture, Risk Management Agency, 2009 Commodity Insurance Fact Sheet - Soybeans - Iowa, January 2009, http://www.rma.usda.gov/fields/mn_rso/2009/2009iasoybeans.pdf. Federal Crop Insurance: Range of Coverage and Policies I. Catastrophic Coverage (CAT) pays 55% of the established price of the commodity on crop losses in excess of 50%, which is the deductible or out-of-pocket loss absorbed by farmer. The premium on CAT is paid by the federal government; however, producers must pay a $300 administrative fee for each crop insured in each county. Limited-resource and beginning farmers may have this fee waived. CAT coverage is not available on all types of policies. II. Buy-up Coverage offers higher coverage (a lower deductible) and is purchased instead of CAT. Policies include: Yield-based policies: Actual Production History (APH) and Yield Protection (YP) policies insure producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The farmer selects the amount of average yield he or she wishes to insure, from 50% to 85%. The farmer also selects the percentage of the projected price he or she wants to insure—between 55% and 100% of the crop price (for APH, the price is established annually by RMA; for Yield Protection, the price is based on futures market prices). If the harvest is less than the yield insured, the farmer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the selected price. Area Yield Protection (formerly Group Risk Plan or GRP) insures against widespread loss of production based on county average yields. When the county yield for the insured crop falls below the trigger level selected by the farmer, an indemnity is paid regardless of the individual farmer's actual yield. Coverage is available for up to 90% of the expected county yield. This protection involves less paperwork and costs less than the farm-level coverage described above. However, individual crop losses may not be covered if the county yield does not suffer a similar loss. This insurance is suitable for farmers whose crop losses typically follow the county pattern. Dollar Plan provides protection against declining value due to damage that causes a yield shortfall. (Crop examples include cherries, chili peppers, citrus, and nursery crops.) Amount of insurance is based on the cost of growing a crop in a specific area. A loss occurs when the annual crop value is less than the amount of insurance. The maximum dollar amount of insurance is stated on the actuarial document. The insured may select a percentage of the maximum dollar amount equal to CAT (catastrophic level of coverage), or additional coverage levels. The Vegetation Index and Rainfall Index do not measure direct production or loss; rather the farmer is insuring against an index that is expected to estimate production. The Pasture, Rangeland, and Forage (PRF) pilot program and the Apiculture pilot program (for beekeepers) use an index for different parts of the country. Revenue-based policies: Revenue Protection (RP) insures producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease, and revenue losses caused by a change in the harvest price from the projected price. The producer selects the amount of average yield he or she wishes to insure, from 50% to 75% (in some areas to 85%). The projected price and the harvest price are 100% of the price determined by futures contracts. The amount of insurance protection is based on the greater of the projected price or the harvest price. If the harvested plus any appraised production multiplied by the harvest price is less than the amount of insurance protection, the producer is paid an indemnity based on the difference. The policy "Revenue Protection With Harvest Price Exclusion" is based on the projected price only (i.e., the amount of insurance protection is not increased if the harvest price is greater than the projected price). Actual Revenue History (ARH) insures an average of historical grower revenues instead of insuring historical yields as done under APH. Like other revenue coverage plans, ARH protects growers against losses from low yields, low prices, low quality, or any combination of these events. Area Revenue Protection (formerly Group Risk Income Protection or GRIP) makes indemnity payments only when the average county revenue for the insured crop falls below the revenue guarantee selected by the farmer; Area Revenue Protection with Harvest Price Exclusion is available if upside harvest price protection is not desired. Whole-Farm Revenue Protection (WFRP) insures revenue of the entire farm rather than an individual crop by guaranteeing a portion of whole-farm historic average revenue (both crops and livestock). To calculate the guarantee, the plan uses five consecutive years of a producer's Schedule F tax form and current-year expected farm revenue. Beginning in 2015, it replaces Adjusted Gross Revenue (AGR) and AGR-Lite. Livestock Policies insure against declining market prices or gross margins for swine, cattle, lambs, and milk. III. Supplemental Coverage Option (SCO) may be purchased with CAT or Buy-up to cover part of the deductible of underlying policy. Eligible crops in 2015 are corn, cotton, sorghum, rice, soybeans, barley, and wheat. Source: USDA's Risk Management Agency, http://www.rma.usda.gov/policies/. Revenue-Based Insurance Revenue insurance accounts for more than half of all crop insurance policies (Figure 3). It began in 1997 as a buy-up option on a pilot basis for major crops. By 2003, acreage under revenue-based insurance exceeded acreage covered by yield-based policies. A "Revenue Protection" policy combines the production guarantee component of crop insurance with a price guarantee to create a target revenue guarantee. Under revenue insurance programs, participating producers are assigned a target level of revenue based on expected market prices for the upcoming season and the producer's yield history. A farmer who opts for revenue insurance can receive an indemnity payment when his actual farm revenue (crop-specific or entire farm, depending on the policy) falls below a certain percentage of the target level of revenue, regardless of whether the shortfall is caused by low prices or low production levels. The price portion of the guarantee rises if the market strengthens between planting and harvest, unless the producer purchases "Revenue Protection With Harvest Price Exclusion." Insurable crops are barley, canola/rapeseed, corn, cotton, grain sorghum, peanuts, rice, soybeans, sunflowers, and wheat. For selected other crops such as tart cherries and strawberries, Actual Revenue History (ARH) insures historical revenues and protects growers against losses from low yields, low prices, low quality, or any combination of these events. Whole Farm Revenue Protection (WFRP) The Whole-Farm Revenue Protection (WFRP) policy insures revenue of the entire farm rather an individual crop. The policy is designed for highly diverse farms that are growing a wide range of commodities, including farms selling to local or regional, and farm-identity preserved, markets and growing specialty crops and animals and animal products. The amount of farm revenue that can be protected is the lower of the revenue expected on the current year's farm plan or five-year historic income adjusted for growth. All commodities produced by the farm are covered under WFRP except timber, forest, and forest products, and animals for sport, show or pets. Maximum total coverage per farm is $8.5 million. WFRP replaces the Adjusted Gross Revenue (AGR) and AGR-Lite pilot programs and provides additional enhancements, such as a range of coverage levels from 50%-85% to fit the needs of more farming and ranching operations; replant coverage for annual crops; the ability to consider market readiness costs as part of the insured revenue and expenses; provisions to adjust the insurance guarantee to better fit expanding operations; and an improved timeline for operations that operate as fiscal year filers. Geographic Distribution of Program Participation and Indemnities With widespread use of crop insurance products for major crops (corn, cotton, soybeans, and wheat), the geographic distribution of acreage enrolled in crop insurance mirrors that of major producing areas (Figure 4). Crop insurance indemnities follow the same pattern, but with an emphasis on producing areas with less rainfall and more variable crop-weather conditions. For example, in 2011, relatively high indemnities were paid in the Great Plains, where drought reduced crop yields in the south and central areas while excessive moisture affected plantings and production in the north. In 2012, a major drought affected a large portion of the United States, and crop insurance indemnities totaled $17.4 billion in 2012, compared with $10.9 billion in 2011 and $4.3 billion in 2010. With improved weather, indemnities declined to $12.1 billion in 2013 and $9.0 billion in 2014. As was the case in 2013, losses in 2014 were extensive across the Plains due to continued drought conditions (Figure 5). Figure 4. Acres Enrolled in Crop Insurance, 2012 Source: USDA, National Agricultural Statistics Service, 2012 Census of Agriculture. Figure 5. Crop Insurance Indemnities in 2014 Source: USDA, Risk Management Agency, http://www.rma.usda.gov/data/indemnity/. Crop Insurance Premium Subsidies The producer's premium for a policy increases as coverage levels rise, and the premium on buy-up coverage is subsidized by the government at amounts from 38% to 100%, depending on the coverage level (Table 1). The subsidy rate declines as coverage rises (i.e., deductible declines). Table 1. Crop Insurance Premium Subsidies