Bankers warned Congress on Wednesday that without changes to federal crop insurance programs, many farmers will not survive another poor growing season.
If the farms fail, the banks that rely on them will suffer too, they added.
"The banking industry has more at stake in the future of agriculture than any other lender," said Dennis Everson, senior vice president of First Dakota National Bank in Yankton, N.D.
"The deteriorating state of the farm economy has challenged us all to consider whether we can improve crop insurance and risk management tools to provide an adequate farm safety net," said James Caspary, president and chief executive officer at First National Bank of Clifton, Ill., a unit of First Trust Holdings Inc. of Watseka Ill.
The bankers testified before the subcommittee on risk management, research, and specialty crops, along with representatives from the Department of Agriculture, insurance companies, and farm bureaus. Most everyone agreed that changes must be made to insurance programs.
A 1996 law began phasing out direct agriculture subsidies in favor of assistance in buying crop insurance.
The USDA will pay half a farmer's premium to insure 65% of his or her crop. But last year, when commodity prices plummeted and weather disasters struck, that insurance alone was not enough.
A government official conceded that current crop insurance programs- created before 1996 - are outdated now that the direct subsidies are diminishing. The phaseout is to be completed by 2003.
"Once those programs were eliminated, it was apparent that the current crop insurance program was inadequate to fill the void on its own," said Kenneth Ackerman, administrator of the USDA's Risk Management Agency.
Bankers are asking that the insurance-premium subsidies be adjusted to encourage farmers to cover more of their crops. Farmers typically insure only part of their crops because premiums are expensive.
This year the USDA has promised $400 million in extra premium subsidies to encourage farmers to buy more insurance, but it is only a one-year solution.
"What happens to producer (farmer) participation after this one-time incentive is gone?" Mr. Everson asked.
Banks also asked that the formula for determining an insurer's payout be adjusted to account for agricultural down years. As it stands, payouts are based on a farmer's average output over the previous five years. If a natural disaster has occurred in one or more of those years, the farmer's yield average-and therefore what it would get from an insurer-is reduced.
Representatives were receptive to amending the insurance rules.
"The coverage is not adequate to protect farmers from the risk they take," said Ken Lucas, a Democrat from Kentucky.
At the hearing, Mr. Ackerman of the USDA said the administration is close to introducing a bill that would fix crop insurance problems.
