Unique Features of the Multiple Peril Program - Cont.

For the 1999 cropyear, additional Federal financial assistance of $430 million will be provided to encourage the purchase of more adequate amounts of coverage. The additional financial assistance originated with an emergency farm bill recently passed by Congress. Preliminary estimates are that this will result in a 30% reduction to the Buy-up coverage premium. Since the Catastrophic premium is completely subsidized, the producer paid premium for Buy-up could decrease the full 30%. However, a significant percentage of this savings is being used to purchase higher levels of Buy-up coverage, as was intended when this additional financial assistance was offered.

Congress has expressed a desire to eliminate emergency Federal disaster assistance and to use the Federal crop insurance program as the primary mechanism for directing aid to producers. This objective is consistent with recent international trade agreements which restrict the types of subsidies which nations can provide to producers. Insurance is considered to be a form of farm income protection which does not distort producers' market incentives to grow particular crops, and for this reason is excluded from the treaty restrictions. In comparison, disaster assistance provides an incentive for the producer to grow as large a crop as possible. The expectation that Congress would protect producers from unanticipated losses would encourage excessive planting, resulting in reduced crop prices.