LegiStorm

Summary:

Farming and ranching are inherently risky. Some of the risks (e.g., production loss or quality damage) can come from natural disasters, such as drought and flooding. Producers affected by a natural disaster may experience decreased agricultural production and financial hardship. In 1994, Congress created the noninsured crop disaster assistance program (NAP) to provide a risk management option for producers growing crops that could not be insured through the Federal Crop Insurance Program (FCIP). NAP provides financial assistance in the form of direct payments (i.e., indemnities) to eligible producers affected by certain natural disaster events. The U.S. Department of Agriculture’s (USDA’s) Farm Service Agency (FSA) administers the program. Congress permanently authorized NAP and provided mandatory funding through the Commodity Credit Corporation in the 1996 farm bill (P.L. 104-127, 7 U.S.C. §7333). Producers must meet certain eligibility requirements to enroll in NAP. They must have risk in the production of an eligible crop and be entitled to an ownership share of that crop. In addition, a producer must apply for coverage before the sales closing date of the covered crop, which is typically 30 days prior to the final planting date for an annual crop. Producers with total adjusted gross annual income above $900,000 are not eligible to enroll in NAP. Eligible crops include any commercial crops grown for food, fiber, or livestock consumption for which there is no FCIP catastrophic coverage available, with limited exceptions. Losses must be due to an eligible event, such as a flood or drought that directly affects the covered crop. A USDA disaster designation is not required to trigger an indemnity. There are two types of NAP coverage: basic and buy-up. NAP basic coverage provides indemnities when producers experience at least a 50% crop loss or are prevented from planting more than 35% of intended crop acreage. Under NAP basic coverage, losses in excess of those minimum loss thresholds are indemnified at 55% of the average market price for the covered crop. For NAP basic coverage, producers pay an administrative service fee. NAP has an annual payout limit of $125,000 per crop year per producer for basic coverage. Producers can elect additional NAP coverage options (i.e., buy-up coverage) that may increase NAP indemnities for a covered loss. Buy-up coverage may be purchased to cover 50%-65% (in 5% increments) of established yield and 100% of the applicable average market price. Producers also can choose from other options that may provide higher indemnities for losses (i.e., historical marketing percentage, contract marketing percentage, direct marketing percentage, and quality loss adjustment). For NAP buy-up coverage, producers pay an administrative service fee and premium. USDA calculates premiums for buy-up coverage based on the value of the potential indemnity. NAP has an annual payout limit of $300,000 per crop year per producer for buy-up coverage. Total indemnities from NAP vary each year based on the number of eligible natural disasters and eligible losses. For instance, for program years 2011-2023, total indemnities from NAP ranged between $122 million in 2023 and $454 million in 2012, when adjusted for inflation. During this same period, the number of approved NAP applications ranged from 53,672 in 2015 to 90,435 in 2023. The most common commodities covered by NAP are animal forage (e.g., grazed pasture and rangeland) and specialty crops (e.g., fruits and vegetables). There are a variety of issues of potential interest to Congress. They include whether NAP provides sufficient risk coverage given recent ad hoc assistance to producers provided by Congress; potential duplication of payments between NAP and other permanent USDA disaster assistance programs for the same loss; implementation of the recommendations from the USDA Equity Commission report; whether to adjust NAP indemnity limits and the adjusted gross income maximum eligibility criteria; and potential synergistic interactions of NAP and FCIP.