2014: A New Year, A Fresh Outlook…Spotlight on Crop Insurance
When Nebraska and Kansas farmers looked out their kitchen windows in the late summer of 2012, they saw withering fields that harkened back to the Dust Bowl years. The majority of both states were experiencing extreme or exceptional drought, a condition that would not change for most farmers through harvest in the High Plains.
And while many farmers cringed as they watched their hard work and investment wilt in the fields, the vast majority of them did not worry that this drought would put their farms on the auction block. That is because 86 percent of planted cropland was protected by crop insurance policies.
In the not-too-distant past, such agricultural calamities would have triggered widespread fear on the farms and in rural towns where bankruptcies and economic devastation was barreling down the tracks like an out of control train. With nowhere to turn, rural America had to plead with their congressional delegations for help, which would come in the form of an ad hoc disaster bill.
This is not a hypothetical scenario. Since 1989, the tab for 42 of these emergency disaster bills for agriculture cost U.S. taxpayers $70 billion. The financial aid from this legislation, while appreciated, often took years to reach the devastated farmers. After a string of these costly bills, Congress moved to incentivize farmers to purchase crop insurance. From that point on, when disaster struck, farmers would turn to their crop insurance agents, not taxpayers, for recovery.
Fast forward to the 2012 crop year. Nebraska and Kansas farmers together had spent over half a billion of their own dollars purchasing crop insurance premiums just in case disaster struck. And when it did, crop insurance indemnities were in the hands of the farmers who suffered losses in weeks, not months or years.
Nothing is quite as loud as success. And the decision to make crop insurance the primary risk management tool has been an unequivocal success for farmers, taxpayers and rural America.
For farmers, who will wave farewell to direct payments and other commodity support programs when this farm bill passes, it allows them to purchase a risk management policy tailored specifically for their needs and risk tolerance. Taxpayers benefit because they are no longer on the hook for the whole tab when disaster strikes.
In fact, since 2000, farmers have spent $38 billion nationally purchasing crop insurance policies, ensuring that they had “skin” in the risk management game. As Senate Agriculture Chairwoman Debbie Stabenow pointed out, when a farmer signs up for crop insurance, “the farmer gets a bill, not a check.”
As for the health of rural America, when farmers catch a cold, the rural economy catches pneumonia. That is because farmers are enormous consumers, investing huge amounts of capital directly into the communities where they live, purchasing fuel, machinery, feed, fertilizer and other durable goods, as well as hiring workers.
Anyone questioning the effectiveness of crop insurance need only look at how well farmers bounced back from the worst drought in decades. The 2013 growing season was one of the best ever, producing the largest corn crop the nation has ever seen. And all of this while total federal spending on farm programs has trended down.
Like other highly successful policies, crop insurance has its detractors. The very same groups who during the 2012 drought were saying that farmers were “praying for drought, not praying for rain,” are now calling for means testing.
Means testing would force many large or highly successful farmers – who also tend to be the least risky – out of the risk pool. And when the lower risk policyholders leave the risk pool, those left, the smaller, younger farmers who also tend to be the riskiest, will see their premiums go up. In short, means testing is the new poison pill being used by those wishing to kill any form of farm program or assistance to rural America.
While the popularity of crop insurance continues to grow, with 90 percent of planted cropland having the protection of crop insurance in 2013, this year is different. This summer when farmers looked over their crops and saw bountiful fields full of golden grains, they knew they would be selling an abundant harvest and not collecting an indemnity check, which brought a smile to many faces. The plentiful harvest and the satisfaction of feeding others is, after all, what farming is all about.
Tom Zacharias, president of National Crop Insurance Services and is located in Overland Park, Kan.
This op-ed appeared in Midwest Producer Magazine on December 26, 2013.