2010 Annual Crops and the 

Federal Crop Insurance Program 

Report to Congress

United States 

Department of 

Agriculture

Risk 

Management 

Agency

Released 

March 2011
The U.S. Department of Agriculture (USDA) prohibits discrimination in all of its programs and 

activities on the basis of race, color, national origin, age, disability, and where applicable, sex, 

marital status, familial status, parental status, religion, sexual orientation, political beliefs, 

genetic information, reprisal, or because all or part of an individual’s income is derived from any 

public assistance program. (Not all prohibited bases apply to all programs.) Persons with 

disabilities who require alternative means for communication of program information (Braille, 

large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice 

and TDD).

To file a complaint of discrimination, write to USDA, Assistant Secretary for Civil Rights, 

Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, S.W., Stop 9410, 

Washington, DC 20250-9410, or call toll-free at (866) 632-9992 (English) or (800) 877-8339 

(TDD) or (866) 377-8642 (English Federal-relay) or (800) 845-6136 (Spanish Federal-relay). 

USDA is an equal opportunity provider and employer. 
2

Executive Summary

Section 12030 of the Food, Conservation, and Energy Act of 2008 required the U.S. Secretary of 

Agriculture to submit to the Committee on Agriculture of the House of Representatives and the 

Committee on Agriculture, Nutrition, and Forestry of the Senate a report containing details about 

activities and administrative options of the Federal Crop Insurance Corporation and the U.S. 

Department of Agriculture’s (USDA) Risk Management Agency (RMA) that address issues 

relating to:

(1) declining yields on the actual production histories of producers; and

(2) declining and variable yields for perennial crops, including pecans.

This report is focused on concerns specific to declining yields on the actual production histories

of producers of annual crops. A separate report to Congress was submitted July 14, 2009, to

address the declining yield concerns of perennial crop producers. 

In 2000, section 508(g)(4) was added to the Federal Crop Insurance Act (Act) providing the 

following mechanism to help address declining yields: “If, for one or more of the crop years 

used to establish the producer’s actual production history of an agricultural commodity, the 

producer’s recorded or appraised yield of the commodity was less than 60 percent of the 

applicable transitional yield, as determined by the Corporation, the Corporation shall, at the 

election of the producer:

(i) exclude any of such recorded or appraised yield; and

(ii) replace each excluded yield with a yield equal to 60 percent of the 

applicable transitional yield.”

In addition to the yield substitution provided by the Act, RMA also offers two other measures 

that can limit the decline in a producer’s Actual Production History (APH). One measure, the 

Catastrophic Yield Adjustment, limits a producer’s approved APH yield to decreases of no more 

than 10 percent from one year to the next. The other measure, the Yield Floor, limits a 

producer’s approved APH yield to be not less than 70 to 80 percent of the applicable county 

Transitional Yield (T-Yield), which is generally based on the USDA National Agricultural 

Statistics Service (NASS) 10-year county average yield. The percentage is dependent on the 

number of years of actual yields contained in a producer’s APH. 

Conceptually, such adjustments may be appropriate if the low yield is not representative of the 

true production expectation and would leave the producer with an inappropriately low crop

insurance guarantee. The practical impact of such adjustments (or of not making adjustments) 

depends on how prevalent and predictable are these phenomena. Any increase in crop insurance 

guarantees higher than what would otherwise be appropriate will eventually necessitate premium 

rate increases. However, higher premium rates may, in turn, lead to reduced program 

participation. Yet, reducing production guarantees to reflect the effects of low actual yields may 

be perceived as reducing the value of the crop insurance coverage.
3

Key questions, therefore, are:

(1) How appropriate are the current procedural yield adjustments to address these 

situations?

(2) How can they be improved?

In an effort to elicit new and innovative ideas to address declines in APH yields resulting from 

multiple years of disaster, in March 2004, RMA requested that the public submit proposals to be 

piloted in response to mitigating declines in a producer’s crop insurance guarantee. RMA

specifically sought proposals for: 

(1) research and development of new and innovative approaches to mitigate declines in 

yield guarantees following successive years of low yields, or provide improvements 

to existing procedures; and/or 

(2) research and development of new and innovative procedures for determination of 

approved APH yields. 

RMA awarded two independent contracts for proposals to mitigate declines in producers’ yields 

for further study. At the conclusion of the contracted studies, the contractors presented RMA 

with a total of five different approaches for consideration that would increase producers’ APH 

yields. All five approaches were submitted to the Federal Crop Insurance Corporation (FCIC) 

Board of Directors (Board) and were subjected to review by five independent expert reviewers

and RMA. RMA and the five independent expert reviewers identified a number of issues 

regarding the proposed approaches. The contracted proposals increased premium rates,

potentially led to over-insurance and moral hazard, and added significant program complexity. 

Because of the issues raised, the Board did not authorize RMA to pursue implementation of any 

of the proposals. 

RMA is currently piloting a Personal Transitional Yield (PTY) program for certain crops in 

North Dakota. The program uses a producer’s overall average yield for the crop in the county to 

determine a T-Yield. The PTY becomes the default “applicable T-Yield” as cited in statute and 

thus can be used for added land, Yield Adjustment, and other T-Yield applications. This pilot 

program is currently undergoing an evaluation to determine how the pilot performed and, if the 

program were expanded nationally, whether it would significantly reduce the use of yield floors, 

cups, and other means to establish production guarantees. If the PTY produces an insurance 

guarantee that better represents the producer’s true production potential, it may actually enhance 

participation in the crop insurance program.

Lastly, in addition to concerns regarding declining yields, a number of producers suggest that

RMA’s current methodologies for establishing APH yields do not properly account for yield 

increases due to technological advances and that the use of a 10-year production history 

inappropriately lowers the APH (often referred to as “yield drag”). Producers have suggested 

that RMA consider a mechanism to reduce or eliminate yield drag. 

RMA is taking the following course for addressing the effects of catastrophically low yields for 

annual crops in the Federal crop insurance program:
4

(1) Perform a comprehensive review of the current PTY program to determine if it has 

performed as expected and to measure the effectiveness of PTY towards addressing

declining yields. If warranted by the review, RMA would likely need the legislative

authority to extend the PTY program to other crops and areas.

(2) Examine ways to address yield drag so that producers are not discouraged from 

providing yields that may not reflect a producer’s current production practices under 

the current program or under PTY. RMA is currently reviewing its APH procedures 

to determine if a more applicable approach is available.

1. Background

Section 12030 of the Food, Conservation, and Energy Act of 2008 required the U.S. Secretary of 

Agriculture to submit to the Committee on Agriculture of the House of Representatives and the 

Committee on Agriculture, Nutrition, and Forestry of the Senate a report containing details about 

activities and administrative options of the Federal Crop Insurance Corporation and the U.S. 

Department of Agriculture’s (USDA) Risk Management Agency (RMA) that address issues 

relating to: 

(1) declining yields on the actual production histories of producers; and

(2) declining and variable yields for perennial crops, including pecans.

As stated in the conference report, “The Managers recognize risk management challenges faced 

by producers, especially with respect to declining yields in light of increases in premiums. The 

Managers are interested in the Department of Agriculture’s activities to address these issues and 

options that the Department has to address these issues administratively.” This report is focused 

on the concerns specific to annual crop producers, particularly the effects of declining yields on a 

producer’s actual production history (APH). A separate report to Congress, sent July 14, 2009,

addressed declining yields with regard to perennial crops, including pecans.

An annual crop is defined as an agricultural commodity that normally must be planted each year. 

Such crops include but are not limited to: corn, soybeans, wheat, barley, rice, and cotton. 

The APH plan of insurance protects against the loss of production due to natural causes such as 

hail, fire, drought, etc. The crop insurance guarantee for APH-based plans of insurance is based 

on an average of the producer’s individual yield history. The producer selects the amount of the 

average yield they wish to insure–from 50 to 75 percent 1

–in order to establish the crop insurance 

guarantee. If the actual yield is less than the crop insurance guarantee, the producer is paid an 

indemnity based on the difference. The amount of the indemnity is calculated as the product of 

the yield shortfall and the price election chosen by the producer. This price election is 

determined as the product of the expected market price (as determined by RMA) and the 

percentage of that price the producer wishes to insure–from 55 to 100 percent.

The APH-based plan of insurance also forms the foundation for revenue coverage in the crop 

insurance program, which today accounts for more than half of RMA’s book of business. 

 1 For crops in some areas, coverage levels of up to 85 percent are available.
5

The data table for Figure 1 is located on page 18 of this report

Revenue coverage not only protects against loss of production, but also against unexpected 

changes in commodity prices.

Objectives of the Federal Crop Insurance Program

There are three general objectives that govern the administration of the Federal crop insurance 

program. The first is to provide effective risk management products to producers. The second is 

to increase program participation by expanding availability into new crops and/or regions. The 

third is to maintain actuarial soundness. Critical to achieving the first two objectives is that the 

insurance products must provide adequate amounts of protection and the associated premium 

rates must be affordable, both as perceived by producers. The third objective–actuarial 

soundness–is required by statute. The usual measure of actuarial soundness in the insurance 

industry is the loss ratio, which is calculated as incurred losses divided by earned premiums. 

Section 506(n)(2) of the Federal Crop Insurance Act, as amended by the 2008 Farm Bill, 

mandates the Federal crop insurance program to operate with a projected loss ratio of no greater 

than 1.0, such that premium collections are sufficient to cover the indemnities paid to 

policyholders. 2

Yet, there is an inherent tension among the objectives of maintaining actuarial soundness, 

providing affordable premium rates, offering adequate amounts of protection, and accurate price 

elections. Increasing the amount of protection (e.g., by providing higher guarantees), as often 

desired by producers, essentially means that larger indemnities will be paid. Of course, larger 

indemnities must lead to higher premium rates, given the statutory mandate that actuarial 

soundness be maintained. However, raising premium rates to maintain actuarial soundness will 

likely dissuade some producers from purchasing a Federal crop insurance policy and/or 

negatively impact coverage level choices, thereby reducing program participation and program 

benefits.

Not all declines in yield are the same. There are three types of declines: decline below the trend, 

reversion to the trend, and a persistent decline (or negative trend). Figure 1 demonstrates the 

first two types of declining yields, using the average

yield for wheat for Mitchel County, KS, as reported by 

the USDA National Agricultural Statistics Service 

(NASS). The oval on the right identifies an example of 

a decline below the trend. In 1988, the 5-year average 

(APH) yield for the county was 38 bushels/acre–about 

equal to the long-term yield trend or what the producer 

can reasonably expect to grow. In 1989, there was a 

catastrophic drought that resulted in the lowest yield 

ever observed for this county. This exceptionally low

yield moved the 5-year APH well below the long-term 

trend, or below what most producers expected to grow 

in the next year. This type of decline in yields is best suited to be addressed in an insurance 

setting. An adjustment in this context is essentially reducing the effect of a low, unrepresentative

 2 To be specific, sec. 502(b)(6) of the Act defines the divisor in the loss ratio calculation as the sum of anticipated 

losses and a reasonable reserve. Similarly, sec. 508(d)(2) of the Act specifies that the premium collections shall be 

sufficient to cover anticipated losses and a reasonable reserve. 

0

10

20

30

40

50

60

70

196819701972197419761978198019821984198619881990199219941996199820002002200420062008

Yield (Bu/Planted Acre)

Figure 1. NASS County Average Yield

(Wheat, Mitchel County, KS)

County Average Yield

40-Year Trend

5-Year APH
6

The data table for Figure 2 is located on page 19 of this report

yield on a producer’s guarantee. The yield measures that currently exist in the crop insurance 

program help address this, at least in part.

The oval to the left in Figure 1 shows the second type of declining yield, a reversion to the trend. 

The yields during the period from 1969 to 1973 were exceptionally high, resulting in an APH 

that was substantially above the trend or was higher than what producers could reasonably expect 

to grow on a continuing basis. After 1973, more typical (and lower) yields occurred, causing the 

APH to move (or revert) to the long-term trend. This type of decline is not well suited to be 

addressed in the crop insurance program. While this example represents a decline in a 

producer’s APH, it is an adjustment towards, rather than away from, a reasonable insurance 

guarantee for the producer. If a yield measure were developed that would prevent this type of 

yield decline, it would essentially lock in a producer’s best yields, resulting in unreasonably high 

insurance guarantees and the need for significant increases in premium rates.

Figure 2 demonstrates the final type of decline in yields–a persistent decline in yields or negative 

trend. This is much less common than the first two types of declines in yields. The graph shows 

the average wheat yield for Throckmorton 

County, Texas. Since about 1993, there has 

been an overall decline in the county yield 

that persisted over 16 years to 2008 (the most 

recent year of data available). The 5-year 

APH also reflects this long-term decline. 

This type of decline is also not well suited to 

be addressed in an insurance setting. If a 

yield measure were developed that prevented 

this long-term decline in a producer’s APH, it 

would eventually result in an excessively 

high insurance guarantee. The producer 

would be virtually assured of an indemnity 

payment in the next year. This transforms 

crop insurance into an income transfer program and is actuarially unsustainable.

In summary, the goal in addressing declining yields is to help ensure, to the extent possible, that 

a producer’s APH does not go below what he or she could be reasonably expected to produce. 

However, any potential measure should avoid either locking in unusually high yields or 

preventing the APH from reflecting a legitimate long-term decrease in yields. It is the latter part 

that makes addressing the issue of declining yields challenging.

Call for Proposals To Address Declining Yields

In an effort to elicit new and innovative ideas to address the declining yields issue, RMA sought 

solutions from the general public. In March 2004, RMA issued a request for proposals that, if 

accepted, would be funded by RMA for development. RMA’s goal was to obtain proposals for:

0

5

10

15

20

25

30

35

40

1968197019721974

1976197819801982

198419861988199019921994199619982000200220042006

2008

Yield (Bu/Planted Acre)

Figure 2. NASS County Average Yield

(Wheat, Throckmorton County, TX)

County Average Yield

20-Year Trend

5-Year APH
7

(1) the development of new and innovative approaches to mitigating declines in yield 

guarantees following successive years of low yields and/or provide improvements to 

existing procedures; and 

(2) research and development of new and innovative procedures for determination of 

approved APH yields. 

RMA received 14 proposals from 9 companies. The proposals were independently read and 

scored by RMA. The factors considered important to establishing new approaches for mitigating 

the effects of low yields were:

• Less subject to decreases during years of low yields;

• Equitable across producers with differing yields;

• Generally applicable across crops and regions;

• Not susceptible to moral hazard, fraud, waste, and abuse;

• Affordable for producers;

• Feasible and cost-effective for RMA and approved insurance providers;

• Understandable; and

• Actuarially sound.

Of the 14 proposals, RMA selected to fund 2 proposals to mitigate the effects of long-term 

declines in approved yields. Both proposals are included in the Appendix. The proposals were:

(1) “Alternative Methods for Mitigating Declines in Approved Yields Due to Successive 

Years of Low Yields–Replacement Yields and Grower Determined Yields” by 

Agrilogic, Inc. (Agrilogic); and

(2) “Yield Indexing for Category B Crops–Indexed (Stabilized) Actual Production 

History” by Science Applications International Corporation (SAIC).

After approximately 2 years of research and development, the proposals were forwarded to the 

Federal Crop Insurance Corporation Board of Directors (FCIC Board) for consideration. The 

Board contracted with six independent expert reviewers, experienced as underwriters or 

actuaries, to review the proposals.

The proposals, and their evaluations, are discussed in more detail later in this report.
8

2. Underwriting of Annual Crops

FCIC offers multiple-peril crop insurance for annual crops to cover loss of production due to 

natural causes, but not losses due to a failure to follow good farming practices. The productivity 

of annual crops is heavily influenced by the producer’s production choices. Examples include 

variables such as location, climate, soil, cultural practices (for example, crop; till or no-till; skiprow, which includes method and pattern; fertilization; weed control; crop thinning; pest control; 

insecticide; disease control; fungicide; and frost control), or other management practices. These 

factors are often interrelated, and many are influenced by timing and frequency.

Adjustments to Historical Average Yields

In some situations, the historical average yield may also be a poor predictor of future expected 

yields. Depending on circumstances, there are various potential adjustments to the simple 

average yield. They are: 

• Yield Substitution;

• Yield Floor; and

• Catastrophic Yield Adjustment.

There is also a Personal Transitional Yield (PTY) pilot program that allows producers to 

combine yields across insured units to create a transitional yield (T-Yield) that better represents 

their individual productivity.

The three yield adjustments are intended to minimize the impact of unusually low yields on a

producer’s APH. Further discussion is provided below.

(1) The Yield Substitution was implemented in accordance with the Agricultural Risk 

Protection Act of 2000. The adjustment allows a producer to substitute a low actual

yield with 60 percent of the county T-Yield (generally the 10-year average yield for 

the county).

(2) The Yield Floor provides a lower limit to a producer’s APH, regardless of past losses. 

The Yield Floor for producers is equal to 70 to 80 percent of the county T-Yield. The 

percentage is dependent on the number of years of actual yields contained in a 

producer’s APH. Yield Floors are available for annual crops with published T-Yields 

only. In some circumstances, a premium rate surcharge is applied. 

(3) The Catastrophic Yield Adjustment provides that the year-to-year decline in a

producer’s APH be limited to no more than 10 percent. Increases in a producer’s 

APH are not similarly limited. This option is available to producers that elect not to 

use the Yield Substitution. The Catastrophic Yield Adjustment is applicable for both 

annual and certain perennial crops. A 5-percent surcharge is applied for producers 

selecting this option. This alternative is the least used of the three yield adjustments.
9

The data table for Figure 3 is located on pages 20-22 of this report

A significant shortcoming of the current yield adjustments is that they are not equitable across 

producers. The Yield Substitution and the Yield Floor are based on the average yield for the 

county. This makes them less effective for the more productive producers with above-average 

yields and potentially overly generous for the less productive producers with below-average 

yields. As will be discussed later in the report, basing these measures on a personal T-Yield 

rather than on a county T-Yield could potentially address this inequity.

Underwriting and Risk Classification

For most annual crops, the premium rate for a given coverage level varies based on the 

producer’s risk classification. RMA’s rating function, as applied to these crops, implies that the 

risk of a payable loss is a decreasing function of yield, which means that the frequency and 

severity of payable losses are greater for producers with a below-average yield (relative to the 

county average) than for producers with an above-average yield. To the degree to which a 

producer’s average yield is above the county average, the producer’s premium rate is reduced 

and vice-versa, as illustrated in Figure 3. Thus, the average yield not only determines the 

insurance guarantee but also affects the premium rate paid by the producer. 

Figure 3: Relationship Between an Individual’s Yield and Premium Rate

One consequence of risk classification based on yield is that when a producer experiences a 

period of low yields, not only does the insurance guarantee decline, but the assessed premium 

rate also increases. This decline in a producer’s guarantee, and the corresponding increase in the 

premium rate, can reduce the usefulness of crop insurance for some participants. This gives rise 

to pressure on Congress and RMA to do something to mitigate the impact of the low yields on 

the crop insurance offer to affected producers.

The Yield Substitution is an attempt to address concerns about the impact of low actual yields on 

insurance guarantees. Because this measure increases the guarantee of affected producers and,

0%

1%

2%

3%

4%

5%

6%

0.500.600.700.800.901.001.101.201.301.401.50

Premium Rate

Individual Yield Relative to County Average
10 

therefore, generates larger program losses, premium rates are necessarily higher given the 

statutory requirement that the program be actuarially sound, as discussed above. 3

An alternative to using the average county yield to determine the county T-Yield is the PTY. 

RMA is currently conducting a pilot program in North Dakota using a producer’s own 

production records to determine yield adjustments due to drought, flood, or other natural disaster 

as an alternative method for determining a producer’s insurance guarantee when fewer than 4 

years of actual yields exist for a particular unit. 

The PTY pilot program allows producers with at least one actual yield to use an average of 

actual yields from other units for missing observations instead of the county T-Yield. The 

guarantee for a unit with fewer than four actual observations would then be based on the 

producer’s PTY, which is a function of the producer’s yield history in other units with the same 

practice, type, and/or variety. 

The pilot program is structured as a policy option applicable to additional coverage policies only. 

If the producer elects to participate in the pilot, the PTY applies to all units on a crop policy. 

Different units on the crop policy may have differing results with the PTY. Some units may end 

up with a higher guarantee and others with a lower guarantee. Producers with actual yields that 

are above the county T-Yield benefit from the pilot program and would select the PTY option. 

The PTY pilot program may increase the yield guarantee, and therefore effective coverage level, 

for the subset of producers that participate. Therefore, the frequency and severity of losses under 

the PTY will be larger than without it. A premium rate surcharge that reflects the increase in risk 

is added. 

The PTY has been operating for 3 years, with participation in North Dakota increasing from 13 

percent in 2007 to almost 19 percent in 2009. In 2009, the crops with the highest PTY 

participation were corn, dry beans, and canola. For the crops eligible for PTY, the loss ratio in 

2009 was approximately 71 percent for producers participating in the pilot (See Table 1). For 

producers not participating in the pilot, the loss ratio in 2009 was approximately 62 percent. 

Table 1 North Dakota PTY Experience, 2007-2009 

Year Participation Premium Liability Indemnity Loss Ratio Crops With 

Highest 

Participation

2007 13.34% $109,241,713 $630,326,332 $51,111,075 .47 Canola, Corn & 

Dry Beans

2008 18.04% $293,690,828 $1,564,392,969 $122,781,379 .42 Corn, Dry Peas 

& Dry Beans

2009 18.54% $204,899,872 $1,148,290,728 $145,880,430 .71 Corn, Dry Beans 

& Canola

The PTY could become the default “applicable T-Yield” as cited in statute and thus would be 

used for added land, yield adjustments, and other T-Yield applications. The PTY allows 

 

3 Section 506(n)(2) of the Federal Crop Insurance Act, as amended by the 2008 Farm Bill, requires the Federal crop 

insurance program to operate with a loss ratio of no greater than 1.0 (i.e., premiums collected must approximately 

equal indemnities paid). The immediate implication of this requirement is that as indemnities increase, so too must 

premium rates increase if actuarial soundness is to be maintained.
11

producers to use more of their yield history, reducing the need for yield adjustments, yield floors, 

or yield limitations. The PTY improves equity across producers as it ensures that more 

productive producers may use their own yields to establish their guarantee rather than having to 

rely on the county average yield (T-Yield). Because of this, the PTY may be one method for 

addressing or improving adjustments for declining yields in the future. 
12

3. RMA Contracted for Alternatives To Mitigate the Effect 

of Declining Yields

RMA received 14 proposals from 9 companies for addressing declining yields. RMA entered 

into development contracts for two of the proposals that best met the evaluation criteria. The 

two proposals were “Alternative Methods for Mitigating Declines in Approved Yield Due to

Successive Years of Low Yields–Replacement Yields and Grower Determined Yields” by 

Agrilogic and “Yield Indexing for Category B Crops–Indexed (Stabilized) Actual Production 

History” by SAIC.

The proposals were then presented to the FCIC Board. The FCIC Board then forwarded the 

proposals for review by an external group of experts with backgrounds in actuarial science, 

economics, and underwriting. The proposals, and the reviews of the proposals, are presented in 

detail in this section.

Replacement Yields and Grower-Determined Yields Proposal

The proposal entitled “Alternative Methods for Mitigating Declines in Approved Yield Due to 

Successive Years of Low Yields–Replacement Yields and Grower Determined Yields” by 

Agrilogic presents alternative versions of the Yield Adjustment currently available to producers. 

They are:

• Coverage Level Plug–this proposed method replaces low actual yields with a yield equal 

to the producer’s average yield multiplied by coverage level. For example, assume a 

producer’s average yield is 43 bushels per acre and the producer selects a 75-percent 

coverage level. If the producer experiences a low yield, it could be replaced with a yield 

of 32 bushels per acre (43 x .75 = 32).

• Average Yield Plug–this proposed method replaces low actual yields with a yield equal 

to the producer’s average yield. For example, suppose a producer’s average yield is 43 

bushels per acre. If the producer experiences a low yield, it could be replaced with a 

yield of 43 bushels per acre. 

• Average Yield Hybrid Plug–this alternative is a combination of the Coverage Level Plug 

and the Average Yield method. The proposal replaces a low actual yield with the average 

yield if it falls below the coverage level multiplied by the average yield. For example, 

assume the average yield is 43 bushels per acre and the producer selects a 75-percent 

coverage level. If the producer has a yield that is below the average yield times the 

coverage level (43 x .75 = 32), the producer could replace the low yield with the average 

yield (43 bushels per acre).

• Grower-Determined Yield–this method allows producers to select an approved yield 

within given parameters in exchange for a higher premium rate to account for the 

increased risk of loss. The proposal disregards the current replacement procedures and 

simply allows the producer to select his/her approved APH yield, as long as it is less than 

120 percent of the average yield and less than the highest single actual yield in the 

producer’s yield history. For example, assume the average yield is 43 bushels per acre 

and the actual yield for a given year is zero. The producer could replace the zero yield 
13

with a selected percentage (e.g., 120 percent) of the producer’s average yield. In this 

instance, the producer could substitute 52 bushels per acre (43 x 1.20 = 51.6). Once 

again, the producer’s premium rate would increase in proportion to the increase in the

producer’s guarantee.

There were a number of issues identified by RMA and the expert reviewers regarding these

proposed alternative yield measures. A major concern is that all of the Alternative Yield 

Measures (AYM) proposed may result in providing producers with coverage that exceeds their 

expected yields. It was determined that the probability of over-insuring individual producers 

became excessive–especially at higher coverage levels and on higher risk land. Over-insurance 

can reduce a producer’s incentive to mitigate losses (moral hazard). In a related point, RMA’s 

current premium rates are based on the current system of yield adjustment measures. The 

introduction of a more generous set of measures would require adjustments to the current base 

premium rates and increase premium costs for producers.

The additional premium rate charged for the proposed AYM measures would make them less 

attractive to producers. The premium rates for the AYM proposals would be similar to the rates 

charged for higher levels of coverage. In other words, the AYM proposals do not offer any new 

options to producers. However, the AYM proposals provide a way for producers to increase 

their guarantee without increasing their coverage level and lowering their subsidy rate.

Given the concerns expressed by the expert reviewers and RMA, the FCIC Board did not pursue 

implementation of these proposed yield adjustments.

Indexed Actual Production History

The proposal entitled “Yield Indexing for Category B Crops–Stabilized Actual Production 

History (I-APH),” by SAIC, adjusts (or indexes) a producer’s yield according to its historical 

relationship to the NASS average yield for the county.

The producer’s yields for every year in which production and acres have been certified are 

averaged. County yields for the corresponding years in which the producer reported production 

are also averaged. For instance, if the producer’s average yield is 145 bushels per acre and the 

county average for the same years is 135 bushels per acre, the producer’s yield index is 1.07 

(145/135 = 1.074).

A yield index greater than 1.0 indicates the producer has, on average, experienced yields that 

have been greater than the county average, and a yield index of less than 1.0 indicates the 

producer has experienced lower yields than the county average. This index is then applied to a 

long-term yield trend that is based on at least 20 years of historical NASS county average yields. 

For example, suppose the expected yield for a county (based on the yield trend) is 137 bushels 

per acre and the producer has a yield index of 1.07. Then the expected yield for the producer 

would be 146.6 bushels per acre (137 x 1.07 = 146.6).

The expert reviewers and RMA identified a number of concerns with this method for 

determining producers’ yields. One concern is that NASS does not publish county yield data for 

each practice, type, or variety for a large number of States and crops, requiring that the I-APH 

yield trends be based, in part, on pooling data from a group of counties. This makes the yield 
14

trends track less well with the experience of individual producers in each county, potentially 

creating inappropriate or excessive insurance guarantees.

Another issue is that the proposed I-APH and the current APH methods will generally produce 

different yield guarantees. This creates an opportunity for producers to choose the higher of the 

two guarantees. A simulation analysis estimated that this “coverage switching” would increase 

expected loss ratios by 5 to 9 percent. This implies that premium rates for both the I-APH and 

current APH coverage would need to increase in proportion to the expected increase in loss 

ratios, making the program less attractive to producers.

The availability of current data is problematic. Data for the most recent year’s county average 

yield is often not available from NASS at the time producers would be calculating their indexed 

yields. For example, when calculating an indexed yield for the 2011 crop year, the most recent 

year of NASS county yield data that is generally available would be from the 2009 crop year. 

This leaves a lag year (2010 crop year in the example) where the producer does not have a 

county yield with which to be compared. This would mean the producer’s 2009 crop year actual 

yield would be used in both the determination of the producer’s average yield and the county 

average yield. This lag year adjustment can bias the yield guarantee by more than 10 percent. It 

provides an upward bias for producers with below-average yields and vice versa. 

Finally, the I-APH is complicated and would be difficult for producers to understand. For 

example, if a producer has an average yield in a particular year while the overall county has an 

exceptionally high yield, the producer would end up with a lower guarantee the following year 

under the I-APH approach. To the degree the county yields do not represent an individual’s 

experience, the I-APH approach can cause a producer’s insurance guarantee to move in 

unexpected or counter-intuitive ways.

At the same time, the I-APH approach presents a significant administrative and computer system

burden for approved insurance providers (AIP), as they would be required to redesign their 

systems, and very few producers, agents, and AIP employees would be able to understand or 

explain how the I-APH works.

Given the concerns expressed by expert reviewers and RMA, the FCIC Board did not pursue 

implementation of I-APH.
15

4. RMA Recommendations

Section 12030 of the 2008 Farm Bill directed the Secretary to deliver to Congress a report on 

options for addressing the effects of declining and variable yields for perennial and annual crops 

in the Federal crop insurance program. Congress was particularly interested in the administrative 

options open to RMA for addressing these issues. 

RMA believes that many of the current adjustments to address the varying yield decline issues 

offer considerable benefits, although room exists for improvements. RMA continues to review 

the APH procedures to determine the most effective, yet actuarially sound manner in which 

changes could be made to address not only declining yields, but also yield increases that would 

better recognize technology advances without unduly over-insuring a producer’s yield. 

Continuing steps RMA is pursuing:

(1) Perform a comprehensive review of the current PTY program to determine if it has 

performed as expected. Assess producer, agent, and approved insurance provider views 

of the program and determine whether implementing a PTY approach on a national basis 

would have a positive effect on the crop insurance program, including the effectiveness in 

addressing declining yields. If warranted by the review, the PTY program could be 

extended to other crops and areas.

(2) Examine ways to address yield drag to better reflect advances in technology and farming 

practices to the extent they have generally increased productivity over time. 

RMA’s objective is to maintain actuarially sound insurance rates, provide affordable premium 

rates to insured producers, and offer adequate amounts of coverage. Increasing the amount of 

coverage (higher guarantees) is often preferred by producers and generally means larger 

indemnities. Because RMA is, by statute, mandated to maintain actuarial soundness, larger 

indemnities lead to higher premium rates. By raising premium rates to maintain actuarial 

soundness, some producers may be reluctant to purchase crop insurance or purchase higher 

levels of coverage. 

Any change to the current, legislatively provided Yield Substitution would also increase program 

costs. Additionally, RMA believes the most meaningful change that would assist in addressing a 

decline in a producer’s yield will require something other than the current Yield Substitution. 

The following approaches may have the most short-term potential for addressing declining yields 

in a viable manner:

 

(1) Allow producers to use a percentage of their own production history, based on the 

number of actual records in their database, for Yield Substitution (consistent with the 

current PTY pilot program) in place of the current adjustments based on county 

average yields. Basing a Yield Substitution on T-Yields derived from county average 

yields may not be equitable, as yields may vary significantly across producers in a 

county. For example, producers with expected yields well above the county average 

arguably receive inadequate benefit from a county-based catastrophic adjustment. 

Conversely, producers with expected yields well below the county average arguably 

receive excessive benefit. In addition, basing the amount of the Yield Adjustment on 
16

the number of years of actual records a producer provides (the more years of records,

the higher the adjustment) will discourage some producers from creating schemes to 

lose prior years’ records with low yields, will increase yield stability, and ultimately 

will, in and of itself, provide some relief from declines in yields. That is, the more 

years of history a producer provides, the less influence that any one year has on the 

overall average.

(2) Use a trending procedure to more accurately determine actual expected yields, which 

will reflect the effects of crop yield trends. As yield trends have been positive 

through time, the typical effect would be to increase APH yields resulting in changes 

in the premiums, liability, and indemnities. RMA is investigating the use of trending 

to adjust a producer’s APH. The effect on premium, liability, and indemnities has yet 

to be determined, but one can likely surmise that premium, liability, and indemnities 

will increase.

In order to provide a Yield Adjustment based on a producer’s own yields, rather than a 

county average yield, it would be necessary for a legislative change to provide RMA 

flexibility to base such adjustment on something other than the current 60 percent of the 

T-yield. Simply increasing the percentage to something higher than 60 percent of the 

T-yield does not address the fact that this form, like the current 60 percent, is less 

effective for more productive producers with above-average yields and potentially overly 

generous for less productive producers with below-average yields. 
17

Appendix 

Alternative Methods for Mitigating Declines in Approved Yields Due to Successive Years of 

Low Yields–Replacement Yields and Grower Determined Yields” by Agrilogic, Inc. (Agrilogic) 

Yield Indexing for Category B Crops–Indexed (Stabilized) Actual Production History” by 

Science Applications International Corporation (SAIC).

Submitted Proposals

Please write to the Risk Management Agency for copies of Appendix 1
18

Appendix 2

Figure 1 Data Table. NASS County Average Yield

(Wheat, Mitchel County, KS)

Year County Average Yield 40-Year Trend 5-Year APH

1968 26.4 27.2 22.1

1969 32.4 27.6 22.0

1970 32.8 28.0 23.5

1971 40.2 28.5 26.1

1972 34.7 28.9 30.3

1973 45.4 29.4 33.3

1974 26.1 29.8 37.1

1975 30.0 30.3 35.8

1976 35.5 30.7 35.3

1977 30.0 31.2 34.3

1978 29.8 31.6 33.4

1979 37.6 32.1 30.3

1980 39.2 32.5 32.6

1981 22.4 32.9 34.5

1982 30.6 33.4 31.8

1983 42.8 33.8 32.0

1984 37.6 34.3 34.5

1985 36.1 34.7 34.5

1986 32.0 35.2 33.9

1987 43.7 35.6 35.8

1988 31.6 36.1 38.4

1989 2.4 36.5 36.2

1990 47.7 37.0 29.1

1991 30.9 37.4 31.4

1992 34.2 37.8 31.2

1993 25.7 38.3 29.3

1994 39.1 38.7 28.2

1995 31.3 39.2 35.5

1996 32.5 39.6 32.3

1997 53.6 40.1 32.6

1998 55.4 40.5 36.4

1999 51.6 41.0 42.4

2000 37.9 41.4 44.9

2001 33.6 41.9 46.2

2002 36.6 42.3 46.4

2003 61.1 42.7 43.0

2004 46.2 43.2 44.2

2005 44.0 43.6 43.1

2006 44.1 44.1 44.3

2007 33.0 44.5 46.4

2008 48.0 45.0 45.7
19

Figure 2 Data Table. NASS County Average Yield

(Wheat, Throckmorton County, TX)

Year Yield Per Net Seeded Acre County Average Yield 20-Year Trend 5-Year APH

1968 24.4

1969 16.3

1970 17.0

1971 4.9

1972 11.0

1973 24 24.0 14.7

1974 15.1 15.1 14.6

1975 18.1 18.1 14.4

1976 15.4 15.4 14.6

1977 18.7 18.7 16.7

1978 7.1 7.1 18.3

1979 27.4 27.4 14.9

1980 18.3 18.3 17.4

1981 26.9 26.9 17.4

1982 20 20.0 19.7

1983 21.3 21.3 19.9

1984 11.8 11.8 22.8

1985 27.4 27.4 19.6

1986 16.2 16.2 21.5

1987 13.6 13.6 19.3

1988 18.5 18.5 18.1

1989 18.1 18.1 17.5

1990 29.9 29.9 27.4 18.8

1991 20.0 26.3 19.3

1992 24.4 25.2 20.0

1993 35.7 24.1 22.2

1994 12.5 23.0 25.6

1995 23.4 21.9 24.5

1996 26.7 20.8 23.2

1997 16.7 19.7 24.5

1998 19.2 18.6 23.0

1999 25.6 17.5 19.7

2000 1.4 16.4 22.3

2001 17.4 15.3 17.9

2002 12.2 14.2 16.1

2003 11.6 13.1 15.2

2004 17.9 11.9 13.6

2005 18.3 10.8 12.1

2006 2.7 9.7 15.5

2007 8.4 8.6 12.5

2008 7.8 7.5 11.8
20

Figure 3 Data Table. Relationship Between an Individual’s Yield and Premium Rate

Individual Yield Relative to County Average Premium Rate

0.50 5.2%

0.51 5.1%

0.52 5.0%

0.53 4.9%

0.54 4.8%

0.55 4.7%

0.56 4.6%

0.57 4.5%

0.58 4.4%

0.59 4.3%

0.60 4.2%

0.61 4.1%

0.62 4.1%

0.63 4.0%

0.64 3.9%

0.65 3.9%

0.66 3.8%

0.67 3.7%

0.68 3.7%

0.69 3.6%

0.70 3.6%

0.71 3.5%

0.72 3.5%

0.73 3.4%

0.74 3.4%

0.75 3.3%

0.76 3.3%

0.77 3.2%

0.78 3.2%

0.79 3.1%

0.80 3.1%

0.81 3.1%

0.82 3.0%

0.83 3.0%

0.84 2.9%

0.85 2.9%

0.86 2.9%

0.87 2.8%
21

0.88 2.8%

Individual Yield Relative to County Average Premium Rate

0.90 2.8%

0.91 2.7%

0.92 2.7%

0.93 2.7%

0.94 2.6%

0.95 2.6%

0.96 2.6%

0.97 2.6%

0.98 2.5%

0.99 2.5%

1.00 2.5%

1.01 2.5%

1.02 2.5%

1.03 2.4%

1.04 2.4%

1.05 2.4%

1.06 2.4%

1.07 2.4%

1.08 2.3%

1.09 2.3%

1.10 2.3%

1.11 2.3%

1.12 2.3%

1.13 2.2%

1.14 2.2%

1.15 2.2%

1.16 2.2%

1.17 2.2%

1.18 2.2%

1.19 2.2%

1.20 2.1%

1.21 2.1%

1.22 2.1%

1.23 2.1%

1.24 2.1%

1.25 2.1%

1.26 2.1%

1.27 2.0%

1.28 2.0%

1.29 2.0%

Figure 3 Data Table. Relationship Between an Individual’s Yield and Premium Rate
22

1.30 2.0%

Individual Yield Relative to County Average Premium Rate

1.31 2.0%

1.32 2.0%

1.33 2.0%

1.34 2.0%

1.35 2.0%

1.36 1.9%

1.37 1.9%

1.38 1.9%

1.39 1.9%

1.40 1.9%

1.41 1.9%

1.42 1.9%

1.43 1.9%

1.44 1.9%

1.45 1.9%

1.46 1.9%

1.47 1.8%

1.48 1.8%

1.49 1.8%

1.50 1.8%

Figure 3 Data Table. Relationship Between an Individual’s Yield and Premium Rate