After months of congressional debate, a crop-insurance reform package appears destined to reach President Clinton's desk.

But before that can happen, congressional leaders must iron out a key difference between the $6 billion crop-insurance bills that passed the House last fall and the Senate - by a tally of 95-5 - last week. Bankers also cautioned that improved crop insurance alone will not solve farmers' bigger problem: the two years of weak commodity prices that have sapped their earnings.

"Producers need to have a strong crop-insurance program available to them, and they need to use it," said William McQuillan, president and chief executive officer of $17 million-asset City National Bank of Greeley, Neb. "Farmers don't like to be dependent on government bailouts or disaster payments. At the same time, crop prices are at historic lows, and I don't see that improving much."

Bankers will closely watch how the conference committee resolves the biggest difference between the House and Senate bills: a $500 million pilot program in the Senate version that would give some farmers direct payments in lieu of subsidized crop insurance.

The provision, which bank groups oppose, seeks to test whether direct payments could prompt farmers not only to buy crop insurance but also to adopt other forms of risk management, such as selling crops on contracts that potentially could lock in better prices.

Bank groups dislike the direct-payment idea, which has been scaled back from earlier versions, because they fear farmers might not spend the money on more coverage. When disaster strikes, they want farmers to have crop insurance rather than depending on emergency government aid.

"We want as much money as possible to go toward enhancing the existing crop-insurance program," said Mark Scanlan, director of agricultural finance at the Independent Community Bankers of America. "We want to get away from depending on these ad hoc disaster bills for farmers to be able to repay their loans."

Last fall President Clinton signed an $8.7 billion emergency-relief bill that authorized direct payments to farmers hard-hit by low crop prices and natural disasters. It was the second multibillion-dollar payout to farmers in as many years.

The ICBA and the American Bankers Association long have argued that a boost in funding for government-subsidized crop insurance could avert the need for such bailouts. Both the House and Senate bills would authorize about $1.5 billion a year from 2001 through 2004 for the crop-insurance program on top of the $2 billion a year Congress already allocates.

Bankers worry that their farm customers do not buy enough coverage - if they buy any at all - to protect their cash flow should hail, drought, or other natural disaster destroy crops. About 70% of farmers buy crop insurance, and most who do get the lowest possible coverage, according to the Department of Agriculture.

"The more coverage farmers have, the more likely they'll be able to survive a weather disaster and pay their banker back the loans they owe," Mr. Scanlan said.

Bank and farm groups argue that the crop-insurance program's existing structure actually discourages farmers from buying more coverage because it gives smaller subsidies as farmers buy higher levels of coverage.

Both bills seek to fix that - albeit with slightly different formulas.

Under the Senate package, for instance, farmers who bought coverage guaranteeing 55% of their average annual income would have 45% of the premium paid by government. But if they insured 75%, the government would pick up 55% of the tab.

"By making higher levels of coverage more affordable to farmers … this bill should increase participation," said Tom Sheehan, president and chief executive officer of $118 million-asset Grafton (Wis.) State Bank.

Still, there are skeptics. Even the head of one of the nation's largest crop insurers, Rural Community Insurance Services in Anoka, Minn., said the government still would have to give emergency aid to farmers whose survival was threatened by historically low commodity prices.

"We don't think this can replace the need for payments," said Michael Connealy, president and chief executive officer of the insurer, which is a subsidiary of Wells Fargo & Co. "This isn't a complete substitute."

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