Crop Insurance Basics: Historic Drought Loss

It has been an exceptionally difficult crop year for many of America’s farmers and ranchers as drought conditions in the West and northern Plains have distressed crops and grazing lands. Approximately 210 million acres of crops are experiencing some level of drought conditions.

Millions of farmers trust crop insurance to help manage their risks, including drought, and farmers have already spoken out about the importance of the farm safety net and crop insurance during years like these.

“Many of our risk management programs, like crop insurance, will be vitally important this year for those producers,” National Association of Wheat Growers Executive Director Chandler Goule said after touring drought-stricken wheat fields in the Dakotas and Minnesota. “Most of the producers we’ve talked to…I’m not going to say they were optimistic but very thankful they had crop insurance programs.”

While the full extent of drought damage is yet to be revealed, crop insurers are already engaged with farmers and ranchers on the ground to help them navigate this historic drought. Currently, more than 90 percent of America’s row crop farmland is protected by crop insurance, and we stand at the ready to keep America growing – no matter the size or scope of the disaster.

So, how does crop insurance respond to a historic drought? We don’t need to look very far back in the history books to find the answer.

In 2012, drought gripped America’s heartland, leaving most of the country reeling from at least some level of drought. It was one of the worst disasters to hit American agriculture in decades.

“Going out in the fields… is a thoroughly depressing experience,” Illinois farmer David Andris told National Crop Insurance Services at the time. “If we didn’t have crop insurance…this year might be the end of it for me.”

The decrease in corn production per acre in 2012 was the largest caused by a drought since 1988.

Farmer Robert Geddes emphasized the importance of having crop insurance during 2012 for the “nasty years like this.” Growers in his area had invested a lot into growing the best crop possible, only to see it lost to drought. If farmers didn’t have the safety net provided by crop insurance, “they’d truly be hurting.”

Thankfully, crop insurance performed extremely well. It quickly and efficiently delivered aid to rural America – exactly as Congress designed.

The public-private partnership of crop insurance meant that farmers weren’t left waiting for years for some form of ad-hoc disaster assistance. Private-sector insurance adjusters quickly assessed damage in the field and crop insurance companies worked swiftly to finalize more than one million claims. This gave farmers the certainty to plan for the next planting season.

Not only did crop insurance help farmers and ranchers weather the drought of 2012, ensuring the security of our food and fiber supply, but crop insurance had a positive impact throughout the rural economy.

An economic study commissioned by Farm Credit Services of America found that in Iowa, Nebraska, South Dakota, and Wyoming alone, crop insurance indemnities from the 2012 drought generated enough off-farm income to save 20,900 non-farming jobs.

Our thoughts are with the farmers and ranchers who are currently dealing with this devastating drought. But history shows us that we will face this challenge together – just as we have before.

Responding to Drought: Crop Insurance’s Proven Track Record

As America’s farmers and ranchers face severe drought conditions, we’ve been reflecting on the historic drought that swept across American farmland in 2012. That disaster showed just how efficiently the Federal crop insurance program can deliver aid when everything is on the line for America’s farmers.

Former USDA Under Secretary Michael Scuse commended the crop insurance industry for its response to the 2012 drought saying, “To this day, I have yet to have a single producer call me with a complaint about crop insurance. That is a testament to just how well your agents, your adjusters, the companies, and the Risk Management Agency (RMA) worked together in one of the worst droughts in the history of this nation.”

Crop insurance stepped up then to provide timely claims service and indemnity payments to keep America growing, and we are once again ready to provide critical relief to our producers.

Over the past decade, members of Congress from both sides of the aisle have continued to strengthen the successful public-private partnership that defines the Federal crop insurance program. Farmers have come to count on the efficiency of the private sector, and crop insurance companies are continually making additional investments to process claims quickly and accurately.

As a result, more and more farmers have turned to crop insurance to help manage their risks. As the cornerstone of the farm safety net, crop insurance currently insures more than 440 million acres of American farmland. That’s over 157 million more acres protected by crop insurance when compared to the acres covered during the 2012 drought.

However, each of these acres is not affected equally by current drought conditions. While the 2012 drought was widespread across much of the country – affecting approximately 85 percent of corn production – the current drought is much more severe in the West and northern Plains. Fifteen states in the West, High Plains, and portions of the Midwest are experiencing extreme and/or exceptional drought.

“This is definitely the worst crop year we have had since we started farming 35 years ago,” Washington wheat farmer Marci Green recently told ABC News. “Years like this are the reason we have crop insurance.”

No matter where the damage happens, private-sector crop insurance companies are ready to deploy loss adjustment teams, determine losses, and quickly pay claims to growers. In fact, crop insurance adjusters have already been out in the fields for months, appraising crops and educating farmers on the specifics of their individual crop insurance policy.

One of the key strengths of crop insurance is that farmers share in the risk – and the cost – of crop insurance. That means American taxpayers will not be left 100 percent on the hook for the cost of the drought.

Farmers pay insurance premiums to purchase coverage before disaster strikes and, like other lines of insurance, shoulder a portion of losses through their deductible. Private crop insurance companies take on losses as well.

The Federal government plays a role, too. In 2012, the government fulfilled its role as a reinsurer under the terms of the Standard Reinsurance Agreement and stepped in to share in the severe and catastrophic losses.

Each component of the Federal crop insurance program worked together in 2012 to help American agriculture survive in the face of overwhelming disaster.

Now, as America’s farmers and ranchers face yet another historic drought, crop insurance is again working to help farmers on the road to recovery. The Federal crop insurance program has a proven track record of delivering for farmers and ranchers in challenging times, and we will continue to meet that call.

Farmers Emphasize to Congress Importance of Crop Insurance

Farmers from across the country testified last week before a House Agriculture Subcommittee hearing examining the efficacy of the farm safety net.

While each grower had a unique story to share, a common thread quickly became clear: America’s farmers depend on the Federal crop insurance program.

Read in their own words what crop insurance means to America’s farmers:

“Crop insurance is a vital tool for farmers, and Congress must not do anything to undermine it.” – Wes Shannon, peanut and cotton farmer in Georgia

“Crop insurance is a cornerstone of my operation. Our ability to market our grain, manage our risks and financially survive depends on crop insurance. Hundreds of thousands of dollars are invested in a growing crop that can be wiped out in one weather event. And there are broader impacts on the ag economy. Considering what farmers spend on ag inputs, machinery, equipment, and crop protection, we must be successful for everyone else. That’s why crop insurance is so critical for our entire industry.” – Jeff Kirwan, corn and soybean farmer in Illinois

“Federal crop insurance is an absolute mainstay to rural Minnesota and farm families like mine. If Washington does anything on farm policy, it should first do no harm to crop insurance.” – Rob Tate, farmer, crop insurance agent, and crop revenue consultant in Minnesota

“I view the Federal crop insurance program to be a fundamental element of the safety net that secures the survival of domestic food production, which I consider to be of critical national importance for all Americans.” – Brian Talley, specialty crop farmer in California

These testimonies reflect the key role that crop insurance plays in the farm safety net. More than 1.1 million Federal crop insurance policies provide more than $100 billion in coverage across more than 380 million acres of farmland in all 50 states. It’s available to farmers of all sizes and more than 130 commodities.

Throughout the hearing, the growers shared their personal experiences with crop insurance and outlined the strengths of the Federal crop insurance program.

Unlike ad hoc disaster bills, which can take years before help arrives, crop insurance delivers assistance for covered losses in just days or weeks. That’s because crop insurance is built on a unique private-public partnership that draws on the efficiency of the private sector to quickly assess damages and determine losses when Mother Nature strikes.

The crop insurance program also gives farmers predictable tools to manage their unique risks. Farmers invest in crop insurance before a disaster – sharing in the risk – and they know how the rules of their policy will help them recover.

Rob Tate also testified that as an agent, he’s seen how important crop insurance is not only for established farmers, but also beginning and socially disadvantaged farmers who need to secure credit and manage their risks.

It’s no wonder that when everything is on the line, America’s farmers turn to crop insurance. Congress must continue to strengthen the crop insurance program and preserve this vital part of the farm safety net.

Celebrating the Incredible Women of Crop Insurance

Last week, as we celebrated Women in History Month, the U.S. Department of Agriculture (USDA) hosted a special conversation to honor the women who work in the crop insurance industry.

Kendall Jones, chair of the National Crop Insurance Services (NCIS) and president and CEO of ProAg, and crop insurance agents and industry leaders Iris Sáenz and Pat Swanson participated in the discussion moderated by Richard Flournoy, Acting Administrator of the USDA’s Risk Management Agency.

Each of the women spoke about their careers in agriculture and the important contributions made by women in the crop insurance industry over the years.

“This industry is led by so many female agents in the field, so many female adjusters, people who do so much hard work,” Jones said. “I’m impressed with so many of the agents that I know today – not only are they running their agencies, they’re helping run farms or running the farms themselves, they have other businesses, they support the industry, their communities… They’re an inspiration to us all.”

Sáenz spoke about how women have always been key to food and farming.

“From the field to the table, women have always played an important role in agriculture. Since Indigenous tribes freely roamed these lands, women have been the primary providers of nourishment for their families and communities. Perhaps that is why many of us here today are inclined to dedicate ourselves to our agricultural communities… that is why it is so important that we, as women, come together to lift each other up.”

It’s important to honor the incredible work of the women in the crop insurance industry – and continue to share the stories of these women to inspire future generations of farmers, ranchers and agents.

Jones advised women who are just beginning their careers to be curious and take risks. Mistakes are inevitable, but with mistakes will also come successes that will build your confidence.

Swanson echoed this advice to be continually curious.

“My biggest advice to everyone… never stop learning. I feel it is so important to continue learning about your industry, about your farmers, about your customers you serve,” she said. “Never be afraid to ask questions.”

While each woman’s story and experience in agriculture has been unique, each found a fulfilling career working in the crop insurance industry and helping America’s farmers and ranchers manage their risks.

“From the cherry orchards in Michigan to the boardroom of the USDA building in Washington, DC, crop insurance has given me endless opportunities along the way,” Sáenz said.

We applaud the women of crop insurance for sharing their inspiring stories and grateful that they are helping continue the legacy of strong women in agriculture.

Crop Insurance Basics: Available to All

In the everyday insurance world, coverage may sometimes be hard to come by.

That can be true if you’ve had a disaster – such as a fire in your home – or live in an area at high risk for disaster. Car insurance coverage may be more expensive or even denied if you are a very young or very old driver, even if you’ve never had to file a claim.

Crop insurance is different.

Under the crop insurance system that has become the centerpiece of America’s farm policy, private-sector insurance providers must offer insurance to growers who are eligible for coverage and want it – regardless of a farm’s size, location, or cropping choice.

Additionally, crop insurers don’t have control over premium setting. A farmers’ rates are calculated and published by the USDA and, unlike other lines of insurance coverage, prices will not fluctuate between insurance providers.

Crop insurers compete on customer service, not price. And they cannot choose to simply do business with well-established farmers from areas that have a history of lower risk crops.

In fact, the crop insurance system must always look for ways to cover more and more farmers. Such inclusivity is a shared responsibility of the public and private sectors, which have partnered to bring additional public and privately augmented insurance options to the marketplace and keep pace with a constantly evolving agricultural sector.

While crop insurance was originally only available to major crops – such as corn, cotton, and wheat – it now offers coverage on 130 different crops, including most fruits and vegetables. Today, more than 1 million insurance policies provide $100 billion in protection to nearly 400 million acres – including about 90 percent of U.S. crop acreage.

And more policies and options are regularly being added through the USDA’s program to encourage new product development, where insurers work along-side farm leaders and researchers to create new and unique policies for everything from alfalfa seed to all-encompassing whole farm revenue protection.

Furthermore, this partnership teams up to deliver in-depth training services across the country for small and socially disadvantaged farmers to strengthen and broaden their familiarity with the inner workings of business planning and risk management strategies.

It’s a system that has married the best of the private sector with the best of government, and the result has been the most effective, popular farm safety net in the history of agriculture.

Crop Insurance Basics: Actuarially Sound

Unless you’re an economist, an insurance guru, or a pension fund manager, chances are good you’re not overly familiar with the term actuarial soundness.

In short, it’s a fancy way of saying “the math must work.”

For example, an actuarially sound pension fund will have enough money in the bank to meet future obligations. If not, and investments made by the fund are overly risky or too conservative – or expenses run amuck – then a whole slew of retirees could be left in the cold.

Federal crop insurance, by law, must be actuarially sound. This ensures that the amount of money in the system is sufficient to meet the costs of paying claims when disaster strikes – and to establish a small reserve for possible extreme losses in the future. To achieve this goal, premium rates are adjusted regularly to reflect current market and crop conditions – a process that requires constant number crunching and research.

This kind of diligence and regular adjustment becomes especially important for those areas where the weather is turning more and more extreme amid climate change. And on the flip side, adjustments can be made to reflect changing conditions that may indicate less risk.

By being actuarially sound, the crop insurance system has a loss ratio performance mandate of “not greater than 1.0” – meaning that over time, indemnity payments paid out to farmers should equal the total premiums invested into the system.

Actuarial soundness has helped the program survive extreme events like the devastating drought in 2012, the worst disaster to hit agriculture since the Dust Bowl. But the system was managed prudently in the preceding years meaning that insurers had reserves to help pay $17 billion in indemnities and keep rural America afloat. The same could be said for the flooding and string of hurricanes seen in recent years.

Things could have turned out much differently had crop insurance not been actuarially sound and historical premiums not been sufficient to cover long-term losses.

That’s why crop insurers invest in actuarial professionals, data collection and analytics. It’s also why decisions made by policymakers carry such huge ramifications for farmers’ most important risk management tool.

Lawmakers must guard against creating new policies that reduce premium rates below future anticipated indemnities, increase risk within the system, or negatively affect the coverage that can be offered. Such policies will likely upset the fine-tuned balance that defines the crop insurance system and makes it affordable, widely available, and economically viable.

In other words, the math must work.

Crop Insurance an Essential Part of Farmers’ Hurricane Preparedness Kits

June 1 marked the beginning of hurricane season in the Atlantic Ocean and its already off to a roaring start. One month in and three named storms have already affected the United States – two of those storms formed before the season even officially began.

Most recently, Tropical Storm Cristobal made landfall in Louisiana, and it will very likely be far from the last storm this year. In fact, the National Oceanic and Atmospheric Administration is predicting a 60 percent chance of an above-normal hurricane season.

For those farming in the Gulf and Atlantic states, a hurricane could destroy everything they’ve worked to grow or care for in just one catastrophic event.

But after the floodwaters recede and the winds die down, America’s crop insurance industry will be there to help set them on the road to recovery.

Just as we were there when Irene destroyed Cash Ruane’s corn crop in 2011.

By the time Hurricane Irene reached the picturesque mountains of Vermont, she was only a Tropical Storm but her capacity for destruction was unmatched. Historic flooding left water on Ruane’s fields for more than four days and at one point threatened his cow herd.

Thankfully, Ruane had purchased crop insurance, as he always does, and immediately called his crop insurance agent.

“I had my indemnity payment within 10 days to two weeks,” he said. “I was impressed, because I was expecting two to three months,” he said.

One crop insurance agent based in Maine recalled the following Spring that for many farmers in New England, “crop insurance was the only thing that saved… them from losing their farms to bankruptcy and instead allowed them to return to their fields.”

We were still there the following year when Hurricane Sandy slammed into the East Coast.

Because the unique partnership created by the Federal crop insurance program is able to leverage private sector efficiencies, adjusters were on the ground in just days to assess damages and indemnity checks arrived in weeks, not months.

And crop insurance helped Justin Price when Florence left his soybean crop a total loss in 2018.

“I had been smart in my decision making, and carried crop insurance, which you know that’s not a salvation but it’s a help.”

We don’t know what this year’s hurricane season will bring, but we know that crop insurance will never leave our farmers or ranchers behind. Not when a pandemic strikes and certainly not when a hurricane hits.

The crop insurance industry is proud to provide an affordable, accessible and personalized safety net to America’s farmers and ranchers.

Crop Insurance Backs Farmers During Unprecedented Uncertainty

Crop insurance has been there for rural America through the many uncertainties that farmers and ranchers face every single day. It’s helped agricultural producers survive droughts, tornados, blizzards, floods, low prices, prevented plantings and even volcanos.

Still, over the past few months, the COVID-19 pandemic has introduced new and unprecedented challenges as farmers navigate supply chain disruptions and try to predict how this crisis will affect demand for the products they raise. Yet, despite these difficulties, farmers continue their essential work to feed, clothe and fuel our nation.

So, we have no doubt that we will weather this storm, together, as well.

Crop insurance helps manage some of the risk that farmers still face. Because Mother Nature does not abide by stay-at-home orders and droughts, floods and freezes will inevitably occur, regardless of the pandemic.

Now more than ever, as farmers are planting their crops while facing an unpredictable future, crop insurance is a familiar tool, with a track record of success, that farmers can rely on as they work to feed America and the world. And we are proud to be a trusted partner to so many famers across the country, protecting more than 90 percent of planted acres.

Crop insurers, agents and our partners at USDA have been hard at work to support our producers and we are proud to maintain our incredible record of service to the America farmer during these uncertain times.

We are so grateful for rural America’s tireless commitment to ensuring that we have safe, affordable and nourishing food to provide for our families. That’s why, through this pandemic –  and all storms large and small – we’ve got your back.

Farm Bureau Compares Crop Insurance to Ad Hoc Disaster

As Congress continues preparation for the 2018 Farm Bill, rural America continues to voice its support for maintaining a strong crop insurance system.

One of the loudest voices in that chorus belongs to the country’s largest farm organization, the American Farm Bureau Federation.  An active member of the crop insurance coalition, Farm Bureau is working hard to dispel myths about farmers’ most important risk management tool.

And they are churning out useful analysis to help lawmakers make the best decisions possible.  Farm Bureau’s latest analysis compared crop insurance to disaster aid as a means to help farmers rebound after Mother Nature strikes.

Here’s an excerpt from that piece:

There are several benefits of crop insurance over ad-hoc disaster assistance. First, crop insurance provides certainty that in the event of a loss a farmer will be indemnified based on a portion of the value of the crop or livestock. Under crop insurance, farmers know what the losses are and indemnity payments are made directly to the farmer. With ad-hoc disaster packages, the compensation to an eligible farmer or rancher may not reflect the value of the loss….

Second, under crop insurance, when a farmer experiences a loss, an indemnity payment will be made within 30 days following the signing of the final loss paperwork. These claims are finalized through a private-sector delivery system. With ad-hoc disaster payments, the assistance payments may be delayed by several months or years following a loss. For farmers experiencing a revenue decline or a crop loss, timely indemnification provides an opportunity for growers to meet their financial obligations. Farmers do not have this same payment capacity with unanticipated emergency disaster payments. 

Third, under ad-hoc disaster payments, a farmer may not be required to prove a loss on the farm. Rather, farmers growing a specific crop or located in a specific part of the country may be eligible for ad-hoc disaster payments even if a loss was not experienced on the farm. Under crop insurance programs a farmer must suffer a financial loss, relative to the insurance guarantee, to qualify for indemnification  – commonly known in insurance principles as a deductible. This ensures that indemnity payments are targeted to areas impacted by a natural disaster such as a drought, hurricane or flood, and that payments are delivered directly to farmers and ranchers impacted by adverse weather….

At a time when net farm income is at a 12-year low, and after farm programs have already experienced substantial cuts in recent years, now is not the time to turn away from the reliability of the crop insurance program in favor of ad-hoc disaster payments. When Mother Nature is the farmers’ business partner, access to affordable and dependable insurance products remains a critically important component to the financial stability of farmers and the U.S. farm economy.

In other words, “Do no harm to crop insurance in the 2018 Farm Bill.”

Former RMA Administrator Opines on Crop Insurance Critics

Kenneth Ackerman, a former Administrator of the USDA’s Risk Management Agency, recently published an article entitled Top Priority for the 2018 Farm Bill: Protect Federal Crop Insurance.

We thought the piece summed up the current political debate surrounding crop insurance well, and wanted to share it more broadly.  Ackerman, who currently works at OFW Law, embodied the term “public-private partnership” when he worked for the government, and, as you can tell, is still a champion of a strong crop insurance system.

Crop insurance critics have a blind spot, seen in the recent CBO report…issued December 2017. At several points, CBO asks whether the cost to taxpayers for the current FCIC program is justified compared with the alternative, that is, simply protecting farmers against unusual disasters by providing what it calls “supplemental assistance,” or what used to be less-delicately labelled “ad hoc disaster bailouts.” CBO ultimately ducks the question. “It is not possible to know,” the report says, “nor are data available,” it argues, and “it is not possible to compare” the two. Here, they are wrong. Data does exist to compare the two approaches. All that’s required to access it is a memory.

Young farmers today probably don’t remember what it was like to be dependent for survival after a natural disaster almost entirely on politicians in Congress working feverishly to produce emergency one-time-only ad hoc rescue packages. These ad hoc bills have largely gone extinct since around 2011 as FCIC crop insurance has replaced them. This accomplishment is no small thing. Even the recent House-passed special emergency bill for 2017’s devastating Hurricanes Harvey, Irma, and Maria, which does provide aid for certain crop losses, links that aid directly to crop insurance participation.

But before 1994, FCIC crop insurance was a tiny program, with participation barely a fourth of modern levels and total guarantees barely a tenth. As a result, every farm disaster required an emergency ad hoc disaster bill. During the decade before 1994, these ad hoc disaster bills averaged about a billion dollars per year, peaking at $4 billion each following the monumental 1988 drought and 1993 flood. These disaster bills, in turn, discouraged farmers from buying coverage.

This was the system that modern crop insurance was designed to replace. The disaster bills at the time were necessary lifelines in the absence of other support, but they were also a nightmare: for farmers, for taxpayers, and for USDA staff trying to administer it. Beyond the sheer uncertainty, a parade of reports from GAO, the Washington Post and other newspapers, and Congressional oversight committees disclosed legions of mis-payments and program abuses, not the fault of farmers or agency staff but simply the fact that USDA was required to implement these bulky, multibillion-dollar programs with little notice and inadequate infrastructure, the result of being, in fact, ad hoc.

FCIC crop insurance, unlike disaster aid, is a business model that rewards farmers for being good managers and good businessmen. Claims are paid reliably in 30 days after being filed, based on stable, pre-set contracts. Farmers purchase their coverage, paying good money from their own pockets, yes at subsidized rates, but still large enough to force them to make serious choices about risk. Producers who keep good production records enjoy better guarantees, and those who incorporate crop insurance into business plans linked with credit, banking, precision agriculture, and related risk-management tools like forward contracting and futures and options, do even better. For farmers who pre-contract their crops to processors, FCIC policies are often designed to incorporate those contacts seamlessly with their coverages. No wonder that private lenders today routinely require crop insurance as a condition of extending credit, as do other rural businesses.

The “reforms” that claim to “fix” crop insurance, be it through means testing, eliminating coverages like the Harvest Price Option, or similar steps, all work against the program’s basic strength, its business basis reflected in established systems for underwriting and rating.

Farm Credit Services Report Touts Crop Insurance

Crop insurance saved nearly 21,000 jobs in four states during one of the worst droughts in two decades, according to a report from Farm Credit Services of America.

The 20-page paper breaks down the history of the crop insurance program from the start in 1930s, with the Great Depression and Dust Bowl, to expansions in the 1980s and 1990s after a string of unbudgeted disaster relief bills strained federal coffers.

The paper says farmers have plenty of “skin in the game” when it comes to crop insurance and their participation helps minimize risk exposure for taxpayers.

FCS provides a step-by-step guide to the public-private partnership that makes the crop insurance program efficient when it comes to covering losses. It also highlights key points including the fact that private companies sell the insurance products and that farmers, like all other insurance customers, pay deductibles and premiums.

But the story of the drought of 2012 is where the paper really shines in showing just how important crop insurance is to keeping America’s food, clothing and fuel supplies secure.

The drought was a devastating hit in a year that was supposed to be favorable for planting. Corn, soybean and hay production declined throughout that summer as the drought intensified.

Corn production was down more than 29 percent and soybeans fell 6 percent. The low yields were coming on a year that started with low beginning stocks, the report notes, and tight U.S. and global supplies.

Projected prices rose in anticipation of short supplies. Farmers faced low yields and ended up facing big expenses to buy crops at higher prices to fulfill forward marketing obligations and to feed on-farm livestock.

Crop insurance helped cover the shortfall and saved 20,900 jobs across Iowa, Nebraska, South Dakota and Wyoming, with an annual labor income of $721.2 million, according to the report.

That’s money that ended up in Main Street shops and restaurants. Money that allowed farmers to continue to pay the bills and get ready for the next season even after a disaster like the drought of 2012.

And best of all, farmers didn’t have to go to Congress for an ad-hoc relief bill – just like Congress designed.

“Crop insurance kept me farming,” farmer Denny Marzen, of Iowa, said in the report. “It’s a business tool I use with my marketing program and to help me deal with Mother Nature.”

ICYMI: Maine farmers know crop diversity is key to success. Our farm policies should reflect that

Bangor Daily News
December 13, 2016

“Diversify, diversify, diversify.” This is the mantra of most financial advisors—a popular approach to protect investors in the face of volatile market swings.

The same strategy also has served agriculture—another unpredictable market-quite well.

Here in Maine, we have established one of the most diverse agriculture “portfolios” in the nation. Growing everything from potatoes to apples and plenty of things in between, our farmers contribute more than $825 million to our state’s economy every year.

It’s exciting to see the potential that this diversified approach holds for the future of farming.

But those in agriculture face challenges that are simply incomparable to other industries. Farmers certainly can’t control the weather, which is often unforgiving, and they also have no sway over markets or the moves of foreign competitors. So it is essential that we have a safety net that protects the small percentage of individuals we enlist to feed and clothe our nation.

Unfortunately, the kind of crop diversification in Maine has not always been reflected in farm policy discussions. Farm policies of the past often focused primarily on a few crops commonly grown in the South and Midwest, while leaving others, such as specialty crops like blueberries, for example, with little support.

That’s no longer the case thanks to improvements to crop insurance. Now, crop insurance is available for more than 130 commodities and has more than 62,000 county-crop programs. Premium support discounts are the same across commodities for each plan of insurance.

This has translated into more farmers from outside the traditional farm country purchasing risk protection. Here in Maine, for example, there has been a more than 20 percent increase in acres insured over the past decade, providing the state’s farmers nearly $30 million in additional protection, according to U.S. Department of Agriculture data. Overall, almost 90 percent of farm acres in the U.S. are covered by crop insurance.

For many farmers, crop insurance offers peace of mind. A crop insurance check will never come close to what a farmer will reap from a good harvest, but it does help them keep farming year after year. And for our beginning farmers, crop insurance is even more critical. It would be almost impossible to receive the needed credit from financial institutions without some assurance that beginning farmers would be able to pay it back if a natural disaster struck.

Taxpayers have benefited as well. Prior to the emergence of crop insurance as the top risk management tool for farmers, natural disasters regularly resulted in very expensive, unbudgeted ad hoc disaster bills from Congress. Now, when disaster strikes, farmers receive an indemnity check.

But just to be clear, crop insurance is not a handout—it’s far from it. To gain coverage, farmers have to put skin in the game. In fact, since 2000, farmers have spent $48 billion out of their own pockets to purchase crop insurance protection. They only collect an indemnity after they have suffered a verifiable loss and fallen below their guarantee.

It’s a win-win for both farmers and taxpayers, yet some farm policy critics would like to send us back to the days of unbudgeted, taxpayer-funded and after-the-fact disaster aid. Legislative proposals like those presented during the last Farm Bill negotiations to limit participation and cap insurance benefits to some farmers would disproportionately affect specialty crop growers and organic farmers whose crops tend to have higher values and therefore are more likely to have higher premiums for coverage. That’s a really bad idea, especially when you consider how important crop insurance is to allowing our producers to stay competitive with the rest of the world.

Crop insurance treats all farmers equally, regardless of operation, size, region, or crop. For Maine farmers, in particular, it is crucial that we protect this safety net that does not discriminate.

E.J. Dorsey is a crop insurance agent with United Insurance in Fort Fairfield. He has more than 22 years experience in the crop insurance field.

ICYMI: Insure our food supply and our economy

The Desert Sun
February 14, 2016

If you have a car, you have auto insurance to protect against property and bodily harm. If you own a house, regardless of its size, you have insurance to guard against costly damage. Chances are good you have policies on your health and even your life, too.

These forms of insurance are common, and as such, people have a high degree of familiarity with them. However, few people realize that the food on their table remains affordable thanks, in part, to insurance protection. Or that America’s food security is improved by insurance because it helps U.S. farmers manage risk.

Crop insurance, which underpins the nation’s agricultural bounty, works like other kinds of insurance, and it is particularly important in a state like California that has such a diverse and thriving agricultural sector. In fact, for most fruit and vegetable growers it is the only safety net available.

This insurance is what helped many California farmers bounce back after the recent drought and plant another year, just as it does following freezes and other natural disasters.

The 2014 Farm Bill made big investments in making the system work better for specialty crop growers in states like California. For example, the new Whole Farm Revenue Protection policy enables a grower to insure his or her entire farm instead of having to buy individual policies for each and every fruit and vegetable planted. This new policy is not crop specific, and now crops like dates, spinach, melons, and other specialty crops may be insured if the producer has at least five years of history growing that commodity.

Thanks to these investments, Californians now have $8.7 billion worth of crops protected on more than 6.8 million acres – including almonds, grapes, pistachios, walnuts, rice, and tomatoes to name a few. It’s no wonder then that the crop insurance industry chose the state as the site of its annual convention.

This week, hundreds of agricultural and insurance industry leaders will be in Riverside County to discuss new developments in crop insurance protection and challenges agriculture will face in years to come. Chief among those challenges will be constant political attacks against farmers.

Despite crop insurance’s risk-sharing structure that minimizes taxpayer cost, there are critics who want to undermine it and are floating proposals to cap coverage and publicly shame farmers, which would disproportionately hit specialty crop growers. But like other USDA programs, crop insurance needs to be widely available to protect all farmers, big or small, no matter what they produce.

These attempts are particularly appalling in a region like the Coachella Valley, where agriculture is such an important economic driver and where the community does so much to aid the underprivileged through farm-to-table programs like Hidden Harvest.

Agriculture’s opponents can be rebuffed if all of agriculture will pull together to defend its way of life. Coordination and communication will be key to confronting our critics, and ideas for working together and delivering a unified message to lawmakers will be our top priority at the annual meeting this week.

About the author: Thomas P. Zacharias, Ph.D., is president of National Crop Insurance Services, the Kansas-based trade association hosting this week’s convention.

Crop Insurance is Money Well Spent by Farmers

Many folks might not realize this, but the passage of the 2014 Farm Bill was a turning point in American history, from an agricultural perspective. Largely gone are the days of government support programs like direct payments. In their place, and at the center stage of farm risk management tools, is crop insurance.

I had a chance to learn the value of crop insurance first-hand when my cousin and I rented our first farm together in 2012. We’ve been farming with our family for many years, but felt it was time to expand out and grab some of our own. Of course, little did we know that the year we kicked off our farming careers would soon become the driest year in decades. We lost all of our dryland crops, roughly forty percent of our acres that year. Thankfully, we had purchased crop insurance.

Unlike days of old, crop insurance is not a federal handout. In fact, if farmers want to enjoy the protection provided by crop insurance, they must purchase it. And they do so willingly, spending roughly $4 billion per year out of their own back pockets on crop insurance premiums alone.

For most beginning farmers, crop insurance is nearly a necessity, since banks are hesitant to make loans to farmers who lack sufficient collateral. Crop insurance allows banks the opportunity to increase lending capabilities with the security of crop insurance. That’s because with a crop insurance policy in hand, banks feel more secure making those loans to farmers, since there’s a guarantee of revenue even if the crop fails.

Crop insurance is a public-private partnership whereby individual farmers like me can buy policies for insurance that is specifically tailored for our tolerance to risk and the profile of our farm. Crop insurance is affordable to farmers, thankfully, because the federal government provides a discount, ensuring that all farmers, young and old, big and small, can purchase policies if they choose to.

Farmers buy crop insurance for the same reason drivers purchase auto insurance: it offers some degree of stability in times of disaster. Crop insurance has become, in essence, the nation’s insurance policy for the food supply. When Mother Nature strikes and farmers lose their crops, those with crop insurance policies in hand can bounce back and plant again the next year.

Crop insurance has also removed some of the financial risk from taxpayers. Prior to the rise of modern day crop insurance, the wide-scale disaster that we experienced with the great drought of 2012 would have necessitated a very expensive, ad hoc disaster bill from Congress. Those bills are big and are fully funded by taxpayers.

And while anything is better than nothing when you literally lose the farm, those disaster funds usually took a year or more to arrive in the hands of farmers who needed them. In my case when I lost forty percent of my crop in 2012, a year would have been much too late.

Crop insurance, on the other hand, is administered by private insurance companies and the indemnity arrives in weeks or a month or two, not years later. The crop insurance policy I purchased not only allowed me and my cousin to pay back our production loan, but also meet our forward contracting obligations. And we were able to bounce back and plant the next year. That’s a smart public policy because it ensures food security for our nation.

Of course crop insurance has its critics, and their sights are squarely on crop insurance, since it’s really the only game in town. And that’s why it’s important for farmers to speak up and let their elected officials know how much they value this risk management tool.

Needless to say, if we hadn’t purchased crop insurance our first year of farming, my cousin and I would be spending years paying off that production loan. And without this valuable risk management tool available, I’d venture to say many more of America’s farmers would have been joining us.

Scott Reilly is a farmer and crop insurance agent who lives in Spalding, Nebraska. This op-ed appeared in the Albion News on February 3, 2016.

Higginsville, S.C. Farmer: Crop insurance policies are crucial for farmers

As someone who has spent more than four decades managing a fourth-generation farm and the past 10 years building my family’s crop insurance agency, I believe I have valuable perspective worth sharing regarding how essential today’s Federal crop insurance policies are to America’s farmers and consumers.

Specifically, I would like to explain how essential the harvest price option has become to the modern agricultural producer. The harvest price option insures a crop at its actual harvest-time value.

Think of it like a homeowner’s insurance policy: If your home appreciates in value after you purchase it, you are protected at the home’s current value if it burns down and you have to rebuild.

Unfortunately for agriculture, this policy that makes rebuilding possible has come under fire from those who misunderstand the unique risks for farmers who are constantly exposed to the ravages of Mother Nature.

It is important to note that farmers pay an additional premium for this type of protection, and it supports their risk management in two distinct ways. First, a farmer often prices a large percentage of his anticipated — or before-harvest — crop using forward price contracts with a local elevator.

If a natural disaster strikes and causes production to fall short of the quantity sold, the farmer would need to purchase enough of the crop to fulfill his contractual obligation. In the meantime, the price of the commodity likely will have increased because of the overall drop in production after the disaster.

Consequently, the remaining crop available to purchase is priced much higher than what was covered under the spring contract.

By purchasing the harvest price option as part of his crop insurance policy, the farmer is able to meet his contractual obligations either by buying grain to deliver under the contract or by making a financial settlement with the purchaser.

A second way the harvest price option becomes essential to producers is if the grain being produced is intended to support the farm’s future animal feed needs. If a natural disaster destroys the grain that is to be harvested, then the producer will be forced to purchase feed instead. If there is a widespread short crop, the feed costs will be much higher.

With the harvest price option on the producer’s crop insurance policy, the farmer will be paid the actual harvest price on his lost production. This, in turn, allows him to purchase the feed needs for his livestock operation and still maintain a viable business.

In fact, allowing farmers to maintain a viable business when the unexpected happens is what crop insurance is all about. The beneficiary is not just the farmer, but also the American consumer.

Crop insurance enables farm families such as mine to pick up the pieces after a disaster and continue to produce food and fiber without significant price increases or supply shortages for consumers.

The fact that Americans spend less of their disposable income on food than any other country speaks volumes as to how critical it is that farmers have risk-management tools such as crop insurance.

The critics would do well to try to understand the link between a viable crop insurance program and an affordable, stable food supply before proposing measures that would destroy it — in other words, before biting the hand that feeds them.

Gary Riekhof is a farmer and crop insurance agent from Higginsville.  This op-ed appeared in The Columbia Tribune Saturday, June 6, 2015. 

Farmers Grow Florida Jobs, Crop Insurance Protects Them

Pop quiz: Next to tourism, what Florida industry is the state’s largest employer?

The answer isn’t healthcare, transportation, technology or even government.  Agriculture is Florida’s second biggest job supplier, according to the University of Florida.

“Two million jobs can be traced to the state’s agriculture, natural resources and related food industries — and not just on our 47,500 farms.  Income from $142 billion in annual sales gets spent around the state to create jobs in restaurants, department stores and car dealerships, too,” Jack Payne of the University’s Institute of Food and Agricultural Sciences said during a recent media interview.

Despite their importance, farmers and all they support are at the mercy of a multitude of uncontrollable forces.

A year of hard work and investment can be wiped out in an instant by a late-season hurricane, an early frost or an unexpected outbreak of insects or plant disease.

And the ever-looming prospect of a changing climate could be “potentially catastrophic,” according to Payne, as it wreaks havoc on water supplies, soil conditions and land use.

So how do farmers gain some control over the uncontrollable and add stability to the region’s economy?

Crop insurance is key.

Farmers purchase protection from weather disasters and price volatility, while private-sector insurers underwrite policies, verify claims and speed assistance to farmers when it is needed most.

The government, in turn, helps discount premiums to promote farmer participation and shield taxpayers from unbudgeted disaster aid that would be necessary without the private-sector insurance structure.

Crop insurance was long viewed as a tool primarily used by corn, soybean and wheat farmers in the nation’s midsection.  But lately, specialty crop participation along the coasts is growing and insurance protection is available on more than 100 different crops nationwide.

More than $1.3 billion in annual insurance protection is being purchased for Florida orange trees alone with another half a billion for nursery crops.  And thank goodness farmers are purchasing these policies.

In the back-to-back disaster years of 2004 and 2005, for example, more than $400 million in indemnity checks flowed to farmers in the state to help them pick up the pieces following hurricanes.

More can be done, too, to make insurance even more attractive to Florida’s farming community and help growers buy higher coverage levels to shield against tomorrow’s disasters.

The 2014 Farm Bill took initial steps by strengthening insurance for organic growers and making it more accessible for beginning farmers.  Other provisions boosted protection for livestock producers and will help bring new insurance products to the marketplace.

From Feb. 8-11, leaders from the crop insurance industry, American agriculture and the federal government will be at the Hyatt Regency Coconut Point Resort in Bonita Springs to discuss risk protection in the 21st century and what can be done to continually improve the system.

Among the key discussion points: Keeping crop insurance affordable for all farmers regardless of their size or planting choices; ensuring widespread availability of insurance across all states and numerous crops; and maintaining the viability of private-sector delivery, which is far more efficient and effective than a government-managed alternative.

It is a packed agenda, and as the cornerstone of today’s farm policy, crop insurers have a lot to discuss.  However, I fully expect us to do our part in supporting the other major Florida employer – tourism – while we are in town.

Tom Zacharias is president of National Crop Insurance Services, based in Overland Park, Kan.  The guest column appeared on February 6, 2015 in the Fort Meyers News-Press and is available

12 Essential Strengths of Crop Insurance

With the passage of the 2014 Farm Bill, crop insurance became the single most important risk management tool for America’s farmers and ranchers.  Crop insurance helps make America’s farmers and ranchers world leaders in agriculture, allowing producers to stay competitive and be more innovative.  It also helps them sleep better at night knowing that, should the unexpected happen, they will have the financial security to stay in business and go on to plant the next season.

As Nebraska farmer Quentin Bowen noted in an op-ed that appeared Lincoln Journal, “The speed of delivery of crop insurance — because it’s administered by private-sector companies — makes it a different kind of animal. In fact, if a natural disaster strikes and I’m covered by a crop insurance policy, typically the payment comes to me in one or two weeks, not in one or two years. Because of that speed of delivery, I can quickly recover from the loss and replant the field, garnering myself some needed income for the year and putting some food on the tables for consumers.

An available, affordable and viable Federal crop insurance program is a key component to the tremendous success of our country’s agricultural economy.  There are twelve reasons why crop insurance is an essential business tool for America’s agricultural producers.  Essential strength number one is “Producers Receive Individualized Risk Management Solutions.” Most farm programs are, in general, similar across all crops and producers, despite variations in an individual farmer’s operations. However, crop insurance allows farmers to customize their plans and coverage to accurately reflect individual losses and their unique yields or risk.  To review the twelve essential strengths and watch real testimonials as to why they are important in the real world, click here.

Crop Insurance One Way to Help Protect Farmers

Right before our very eyes, the nation’s specialty crop capital has turned into the nation’s frozen food section, as the San Joaquin Valley suffered several consecutive nights of freezing temperatures. While the extent of the damage to some crops could take weeks to assess, one thing is clear: Some farmers will take a big loss.

Loss is common in agriculture, and there has been a lot of it lately, though most of it was not here in California. In 2011, we saw a freeze in Florida that hit the citrus crop, then Midwestern droughts, floods in the South and even hurricanes. Last year started off looking like a banner year but morphed into the worst U.S. drought in decades. Much of the Midwest is still suffering.

Thankfully, most farmers are protected by crop insurance, a backstop for when the bottom falls out. Crop insurance helps farmers manage risk. It combines the public sector with the competitiveness of the private sector. Farmers buy policies that are partially underwritten by the government, but the private sector services the policies and pays off when the farmers takes a loss.

For many farmers, particularly the thousands who grow specialty crops, crop insurance is the only risk-management tool available. Most of the growers I know buy crop insurance every year, yet nine times out of 10 they don’t collect a dime.

It’s not cheap. In fact, some growers spend $100,000 on policies they seldom use. Those who say farmers are getting rich off crop insurance, do the math.

When there’s a natural disaster, losses can be steep. If a farmer loses his entire crop to disease or disaster, many could go under without a backup plan. That plan is crop insurance.

California’s citrus industry is a window into the national crop insurance program and how it works. It was first introduced after a devastating freeze in 1990. Initially, growers were hesitant to spend large sums for protection. But participation has grown over time as premiums dropped.

The growth of crop insurance is a testament to the market and the dedication and professionalism of those who service the plans.

But there are those in Washington who will take the failure to pass a four-year farm bill and use it as an opportunity to eviscerate crop insurance. Every day I speak to California farmers, who, like farmers elsewhere, are worried about what would happen if their only risk management tool is weakened or eliminated.

Their message is to “do no harm to crop insurance.” If Congress feels the need to revisit the program, it should only be to strengthen it and expand the number of crops it covers.

California agriculture generates more than $37 billion a year. Sixty percent of our farms are less than 50 acres, just one indicator of the growing number of specialty crop operations. California needs specialty crops, and specialty crops need insurance.


Jordan Roach is the CEO of Global Ag Insurance Services in Fresno, the only crop insurance provider headquartered in California.

This op-ed appeared in the Modesto Bee on February 8, 2013.


Crop Insurance Will Help Missouri Farmers Plant Again Next Year

It’s no big secret that Missouri is facing its worst drought in 30 years. This has had a catastrophic impact on the state’s farm and livestock sector, prompting Secretary of Agriculture Tom Vilsack to declare every county in the state a disaster area in July. And while tropical storm Isaac brought us some much-needed rain, every county in the state remains in some level of drought.

As a Missouri farmer, I can tell you that there are few disappointments in life bigger than losing a crop. The loss not only robs you of the income that it should bring – especially with commodity prices at record highs – but also robs you of the joy of the harvest, which is what we farmers are all about.

If I hadn’t purchased a crop insurance policy this year to help me through an event like this, I possibly wouldn’t be able to farm again next year. But that’s the main reason why the federal government teamed up with the private sector years ago to form this public-private partnership that helps farmers manage their risk while shielding taxpayers from expensive farm disaster bailouts.

Droughts like this don’t happen often, but they do happen. And when they happened in the past – before crop insurance was widely available and affordable for most farmers – Congress responded with expensive ad hoc disaster bills. In fact, these disaster bills totaled $45 billion from FY1989 to FY2001.

They don’t call Missouri the “Show Me State” for nothing, and crop insurance has proven its value. Last year, although conditions here were fairly good, there was a string of natural disasters across the rest of the country – from freezes to floods to hurricanes and even wildfires – that left many farms in shambles. And despite these disasters, there wasn’t a single call for a federal farm bailout, because roughly 84 percent of all eligible land was protected by crop insurance.

Crop insurance isn’t cheap for farmers, who have forked over $4 billion out of our own pockets this year to purchase policies, which protect 128 different crops from a wide variety of natural disasters.

This is a great example of the federal government and the private sector working hand in hand for the common good of the country and the food, feed, fuel and fiber supply. In this unique partnership, farmers purchase crop insurance policies – that are partially underwritten by the federal government – and they only receive an indemnity if they incur actual losses. The crop insurance system is efficient, because it is sold, serviced and delivered by the private sector.

In fact, in years past, federal aid for farm disasters like the one we’re in would have taken months or years to get into the hands of the farmers. Compare that to crop insurance, which has been delivering indemnities to farmers as they filed their claims, and thus far this year has put more than $2 billion into the hands of farmers who suffered losses.

Agriculture is certainly a very risky business, which means that banks are often hesitant to lend to farmers, particularly those who are just starting off. But farmers who purchase crop insurance are deemed a much lower risk by the banks, who count the crop insurance indemnity as collateral for the loan.

As disagreeable as things might seem sometimes in Washington, D.C., the fact that crop insurance is a quintessential risk management tool for farmers is one of the few things that both Republicans and Democrats can agree on. And farmers made their feelings on the issue quite clear earlier this year when they delivered a unified message to Congress regarding the upcoming Farm Bill: “Do no harm to crop insurance.”

Of course, there are those who would like to see all farm programs cut, either because of their dislike of government spending or their dislike of family farming. They charge that farmers would rather collect a crop insurance indemnity than harvest a crop. Imagine if a similar charge was leveled against someone who purchased car insurance. Can anyone really believe that people purposely crash their cars to collect the indemnity?

If rains don’t come this winter, we could be looking at the second year of this. Mother Nature strikes in cycles, so that possibility isn’t entirely out of the question. But there are things that we can count on. And at the top of that list is this country’s crop insurance system, which will allow farmers like me who take a beating this year to come back to the table again next year for another try.

Jeremie Nothdurft is fourth generation farmer from Gordonville, Missouri who raises corn, soybeans and wheat on the family’s 1,200 acre farm. This op-ed appeared in the Kansas City Star on Sunday, October 28, 2012.

New NCIS Video Highlights Critical Role Adjusters Play

“Some of the same people who had to deal with the floods last year along the Mississippi and Missouri rivers are now dealing with the opposite – extreme drought,” says Calamus, Iowa, claims manager David Bousselot, in a new NCIS video.

The video highlights the critical role that many of the 5,000 claims adjusters play in helping farmers pick up the pieces after the worst drought in decades, with $3.6 billion already in the hands of farmers. “The adjuster is the connection with the producer,” says Bousselot.

Throughout most of the summer, more than 60 percent of the continental U.S. was locked in drought, which sent corn and soybean yields plummeting.

“I think it was a combination of the lack of moisture and the heat we had in early July that just cooked the corn,” says claims adjuster Tim Totheroh of Wellington, Illinois.

Bousselot notes that many adjusters have also farmed, and thus fully understand the pinch farmers find themselves in when Mother Nature strikes. “Getting the money back to them in the quickest way we can is the service we provide,” he added.

To date, more than 405,000 claims have been indemnified, with many more expected. In 2012, farmers will invest more than $4.1 billion to purchase more than 1.2 million crop insurance policies, protecting more than 281 million acres of crops.

Robert Geddes, a farmer from Hoopeston, Illinois, explains that after he experienced his first drought as a farmer, he had a chat with a local adjuster and has been purchasing crop insurance ever since. “It’s in the nasty years like this that it really helps,” he said. “If you miss a crop, things will go downhill for a farmer in a hurry,” he added.

The video underscores both the need of crop insurance and the efficiency of the public-private partnership, which makes crop insurance affordable while also being universally available. More than 128 different crops can be protected by crop insurance. These range from major commodities like corn and soybeans to specialty crops ranging from apples to cherries to asparagus. Crop insurance can also be purchased for livestock.

Keeping Crop Insurance Strong

The 2012 budget will likely include modifications and reductions to the farm safety net. Policy makers should consider 12 essential strengths that make crop insurance the corner stone of the farm safety net programs. In this on-going series, we’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producers receive crop insurance indemnities in the timeliest way.

Although some farm programs make payments fairly quickly – such as marketing loan benefits – others pay out long after the actual payment is needed.

For example, final countercyclical and Average Crop Revenue Election Program (ACRE) payments for the 2010 spring planted crops will be made no earlier than October, 2011. Payments for the Supplemental Revenue Assistance Payments Program (SURE) may occur about one and a half years after harvest.

Crop insurance, on the other hand, pays out its indemnities very close to when the losses occur – the very time when farmers need the money the most. In fact, companies make indemnity payments usually within 30 days of claim settlement. Losses from natural disasters, prevented planting and replants are sometimes paid before harvest.

Issue Brief: Crop Insurance

Issue Summary:

Having a strong agricultural sector that provides an abundant and affordable supply of food and fiber is key to any country’s security, which explains why most countries have farm policies in place to help promote and sustain domestic production.

A key component to America’s food, fiber, and farm policy is crop insurance, a public-private partnership that has constantly evolved and improved over the years. Today’s crop insurance system marries the best of government and the business community to speed assistance to farmers when they need it the most while limiting taxpayer exposure.

Recent weather disasters underscore crop insurance’s importance and explain why many farmers consider it their most important risk management tool. In fact, for producers of many specialty crops, crop insurance is the only risk management tool available.

Policy Overview:

There are 15 private sector insurance companies that currently sell and service policies through the federal crop insurance program. These companies are regulated by law and through a contractual agreement with the government that ensures coverage is available to any grower who wants insurance regardless of geographic location or risk.

Altogether, these companies issued more than 1.1 million policies in 2010. To make sure premiums are affordable and policies are abundant, the federal government helps underwrite a portion of the premiums for policies purchased by individual farmers. Without some government involvement, there would likely be little or no multiple peril crop insurance available today.

Should damages occur during a growing season, losses are determined by private loss adjusters, quickly followed by policyholders receiving their payments from private insurance companies.

Approximately 80 percent of U.S. principal crop acreage was enrolled in crop insurance, with 256 million acres under policies worth $80 billion in total coverage.

Federal funding for crop insurance has been drastically trimmed in recent years, with more than $12 billion in cuts made since the 2008 farm bill. Many in the crop insurance business worry that additional cuts would so weaken the infrastructure that the program could not function as Congress intended or as farmers need.

And without an effective risk management structure in place, taxpayers would wind up footing the bill for expensive ad hoc disaster packages following adverse events. Most experts agree that without some government support, there would be little or no multiple peril crop insurance available today.

Policy Strengths:

Crop insurance ensures that producers share in risk management decisions and program costs: Because producers pay part of the premium and purchase the specific type of policy that exactly fits their needs, crop insurance ensures a very tailored approach to risk management.

Crop insurance is important for securing loans: Banks can be hesitant in making loans to farmers, particularly to smaller producers, because the risks are inherently high. Banks regard a crop insurance policy as collateral in making what might otherwise be a very risky, and costly loan to farmers who need to raise capital.

Crop insurance benefits from efficient private-sector delivery: Crop insurance combines the accessibility of the public sector with the efficiency of the private sector in ensuring that covered farmers who face catastrophe receive the proper level of payments in a timely manner. This can mean the difference between staying in business another year or going under for many farm families.

Proponents of Crop Insurance:

Crop insurance has enjoyed widespread public recognition and support. In fact, its biggest detractors seem to be libertarians, who argue for the end of most government programs.

Unfortunately, without some government involvement, crop insurance policies would be too expensive for farmers to purchase, and it would be too costly for insurance companies to offer universally available multi-peril coverage.

What They’re Saying:

“Failure to anticipate an imminent downturn in the agricultural economy by not maintaining farm policies through the farm bill and crop insurance… would, in time, prove penny wise and pound foolish.”
— A letter to House Budget Committee from nearly 30 farm groups.

“Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.”
— USDA Chief Economist Joseph Glauber

“It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”
–Mary Kay Thatcher, American Farm Bureau Federation,
Senior Director of Congressional Relations.

“Farm policy in general, and crop insurance in particular, will help weather-ravaged growers pick up the pieces and farm another day. It does so for less than one-quarter of 1 percent of the federal budget..”
— Roger Johnson, President, National Farmers Union

“Farmers like me need to have access to affordable risk management tools to better mitigate the impact of significant crop losses and sharp price declines. This is why the upcoming farm bill is so important. It is not about providing income to the less than 2% of the American population. It is about insuring that the same 2% can continue to provide affordable food for the other 98% of Americans who rely on them.”
— Testimony Of Clark Gerstacker,
Michigan Farmer, Before the U.S. Senate Agriculture Committee

“For 80 years now, we’ve been providing a safety net that helps people stay in business so that they’ll have a chance to try again next year. Without it, there’s no doubt we would have higher food prices.”
— Joe Outlaw, co-director of the Agriculture and Food Policy Center,
Texas A&M University

Useful Links:

National Crop Insurance Services

Keeping Crop Insurance Strong

As lawmakers place farm policy under the microscope again, they should consider 12 essential strengths that make crop insurance the linchpin of the farm safety net programs. In this on-going series, we’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producers receive an individualized risk management solution.

Crop insurance is specifically tailored to each individual policy holder, covering the expected yield and revenue risk of each individual producer. The producer is free to select alternative levels of coverage, based on their historic or projected yield. Different rules govern new lands brought into a coverage plan or covering “risky” land. In addition, the producer may also receive coverage for prevented planting, planting losses and lower quality yields.

Crop insurance is an excellent tool for producers who want individual protection specifically matched with the risks they face and the character of their operation. In general, other safety net programs are structured to be the same, across the board, because of easier delivery and wider application. Unfortunately, with the one-size-fits all approach, payments received by producers may not adequately reflect the full degree of damage to their crops.