This study aimed to review the overall of U.S. Revenue Insurances as a farm safety net and to derive the implications for Korean Crop Insurance Policies.
The U.S. Crop Insurance was introduced to recover farm and rural economy destroyed by the combination of the Great Depression and the Dust Bowl in the 1930's.
The performances of U.S. Crop Insurance was trifle until the 1980 Federal Crop Insurance Act which enabled USDA to subsidize a part of farmers' premium and to encourage private insurance companies to participate in marketing crop insurance. The 1980 Act resulted in the enlargement of crop insurance. The number of the insured crops was increased and the rate of farmers' participation was the 30's percent. However it didn't satisfy the goal of the Assembly(50%).
There are several programs to stabilize farm economy such as Disaster Payments, Loan Deficiency Payments, Crop Insurqance, and Counter Cyclical Payments. Crop insurances are the most important among the various safety nets. Despite of the important role of crop insurance as a safety net it has the limitation in coping with revenue losses by price fluctuations. Many studies have examined the limitation of crop insurance and suggested the necessity of price insurance or revenue insurance. Also farmers have requested the methods to overcome the farm income fluctuation.
The insurances to cover price decline as well as yield reduction have been implementing after the Crop Insurance Reform Act of 1994. Federal Crop Insurance Corporation approved Income Protection(IP) and Crop Revenue Coverage(CRC) in 1996 and Revenue Assurance(RA) in 1997. These three programs had been executed in Illinois, Iowa, Alabama, etc. for corn, soybeans, wheat and cotton in pilot programs. After several years of pilot programs these programs have been expanded nationwide. The portion of revenue related insurances increased gradually during the 1990's. But since the early 2000's revenue insurances have been expanded rapidly and the share of revenue related insurances in participation rate and liabilities are up to about 75%.
RMA(Risk Management Agency) has been continuing to modify and develop revenue insurances as better farm safety nets. In May 2010, RMA/USDA released the Combo Policy to combine five programs such as Actual Production History, CRC, RA, IP, and IIP(Indexed Income Protection). The Combo Policy was a result of four years work and was applying from 2011 crop year. The main reasons were to simplify programs and to raise the efficiency of crop insurance program.
RMA/USDA was authorized not to develop program itself but to encourage many entities such as private insurance companies, Universities and other orgaizations to develop useful programs. The developed programs are submitted to the Board of FCIC and reviewed th feasibilities of application. The adopted programs are reimbursed by RMA.
In addition, RMA/USDA has been trying to raise the effectiveness of crop insurance, especially revenue related insurances in various ways. RMA has been collecting the data related to production and disaster and reviewing the premium rate and the possibilities for modifying the current insurance programs. In collecting the data and reviewing the modifying programs RMA uses IT technology, GIS and satellite data. RMA also has been educating producers, agents and adjusters regulary for more transparent operation. Enormous financial deficit may result in the contraction of crop insurance policy. But with the expectation of frequent disasters and price fluctuation the U. S. Government is expected to try to reconcile farm safety nets and to utilize revenue related insurances as the main methods.
As a result of reviewing U.S. Revenue Insurance the implications for Korean Crop Insurance can be summarized as follows. First, in designing the crop insurance programs the convenience of farmers should be considered with the first priority. Second, the proprieties of crops and locations are considered in more details in developing crop insurance. Third, in order to secure fairness and objectiveness of crop insurance policies, the adjusters are should be qualified by national examination. Fourth, it is necessary to have a system to collect and analyse the statistical data and related information. It is very useful to utilize IT technology, GIS, and satellite data, etc.. Fifth, the endeavor to harmonize crop insurance with other farm safety net programs is necessary in coping with the fast changing conditions.

Researcher: Choi, Kyeong-Hwan
Research period: 2011. 5. - 2011. 10.
E-mail address: kyeong@krei.re.kr