Former RMA Administrator Opines on Crop Insurance Critics

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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.

President Trump Wants an ‘On-Time’ Farm Bill with Crop Insurance

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It’s been more than 25 years since a sitting U.S. President addressed the American Farm Bureau Federation.  But President Donald Trump made up for lost time with a rousing speech yesterday to the Farm Bureau convention in Nashville.

From tax and trade to immigration and infrastructure improvements, he touched on a myriad of important issues during a 35-minute speech.  Yet, it was his comments about farm policy and crop insurance that proved to be one of the afternoon’s biggest applause lines.

“I’m looking forward to working with Congress to pass the Farm Bill on time so that it delivers for all of you,” President Trump told the group of nearly 5,000. “And I support a bill that includes crop insurance.”

The President singled out Senator Roberts, a long-time champion for farm policy and for crop insurance, and praised his relentless efforts on behalf of agriculture.

“We are working hard on the Farm Bill, and I think it’s going to go well,” he noted.

President Trump’s support of a strong farm policy isn’t surprising, considering his opinion of America’s farm and ranch families.  The President opened his remarks with these observations:

We’ve been working every day to deliver for America’s farmers just as they work every single day to deliver for us.

 We know that our nation was founded by farmers.  Our independence was won by farmers.  Our continent was tamed by farmers, so true.  Our armies have been fed by farmers and made of farmers.  And, throughout our history, farmers have always, always, always led the way….

 The men and women in this room come from different backgrounds and from all across our land, but each of you carries the same title that’s been proudly borne by patriots and pioneers, inventers and entrepreneurs.  The title of, very proudly, American farmer.  Thank you very much.

He also explained, “Our farmers deserve a government that serves their interest and empowers them to do the hard work that they love to do so much.”

Assuming Congress agrees, rural America should expect a good Farm Bill sooner rather than later.

And that would provide lawmakers and President Trump the opportunity to take a victory lap next year.  He promised the group that he would be returning to help the Farm Bureau ring in their centennial convention next January.

‘Don’t Mess with Crop Insurance’

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“Don’t mess with crop insurance.”

The phrase has become a battle cry among farmers in the Midwest, especially as legislators headed out for listening sessions and town halls ahead of the next farm bill.

And so far, legislators are hearing the message.

That’s the opening of a recent Farm Futures article about crop insurance.

The piece points out that crop insurance has become the most popular safety net for farmers because it replaces the costly emergency disaster relief bills of the past. Back then, when a storm destroyed crops, farmers had to ask Congress for help. The system was expensive for taxpayers and inefficient for farmers because of slow government payments.

Today’s modern crop insurance – where farmers design their own policies, pay premiums, shoulder deductibles and only receive indemnities after losses are verified by trained adjusters – is easier to manage and more accountable. And, since farmers are paying into it, taxpayers aren’t left shouldering all of the cost when disaster strikes.

It’s no wonder, as the article notes, that 83 percent of farmers in a recent survey said crop insurance was a very important part of their risk management plans.

Unfortunately, 75 percent also said they were worried that the next farm bill won’t provide an adequate safety net, showing the angst in farm country over low commodity prices and increasing weather unpredictability.

Amazingly, some lawmakers are looking to weaken crop insurance and leave farmers even more vulnerable.  Art Barnaby of Kansas State University detailed why that would be such a mistake in a follow-up Farm Futures article.

Among the consequences, he found, of making crop insurance less affordable and less available:

  • Most farmers, including relatively small grain growers, would be affected if the Harvest Price Option were eliminated – a popular product similar to “replacement value” in other lines of insurance.
  • Proposed caps on premium assistance would be hit by numerous farms across the country, including specialty crop farms as small as 200 acres in some California counties.
  • Forcing farmers to pay more for insurance could affect coverage levels and weaken the system – an idea backed up by the Farm Futures survey, which found that 84 percent of farmers said they couldn’t afford adequate coverage without federal assistance.

Farm Futures also looked back at crop insurance data since the late ‘80s and found a system that is in balance and is providing high levels of protection.

“Since 1988, crop insurance policies have covered $15 trillion to guard against losses,” the publication noted.  “During the same period, total premiums paid were $136 billion and total indemnities paid to farmers came to $116 billion.”

In other words, crop insurance is working as designed and the consequences of weakening it could be dire.

“Don’t mess with crop insurance.”

University Researchers: Limiting Crop Insurance Cuts Deep

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Crop insurance has been hailed by lawmakers and farmers alike as an essential risk management tool during recent House and Senate Agriculture Committee hearings. Despite the praise, there are still critics who hope to weaken farmers’ protection against natural disaster and wild swings in the market.

Farm policy opponents are specifically aiming to cap the discounts farmers receive on insurance premiums, eliminate a key revenue insurance product pegged to commodity prices, and exclude some growers from the system altogether based on their income.

Such proposals are meant to target America’s biggest farms, but recent work out of the University of Illinois and Kansas State University shows that the effects would be far wider, hitting many family farms, too.

To get a better idea of the impact of a proposal to limit premium discounts, Dr. Gary Schnitkey of the University of Illinois looked at the heart of corn belt in McLean County, Illinois. The area has prime growing conditions with deep and fertile soils.

There, he found, farmers with insurance coverage on 85 percent of their crops, the highest amount offered, would hit the proposed $40,000 premium discount limit after 2,944 acres – a large farm, but by no means a giant operation.

Meanwhile Illinois counties where land isn’t as fertile, like Saline County, would hit the cap at the same coverage level on just 884 acres – a mid-sized farm similar to most family farming operations. This cap would be hit even sooner by growers considered riskier because of past losses or bad yields.

It’s not just Illinois either. Drs. Art Barnaby and Mykel Taylor from Kansas State found similar results in other Midwest states. For example, nearly 15 percent of Kansas farms would hit the cap, they noted.

The pain grows exponentially, Barnaby and Taylor explained, if farm policy critics are successful in eliminating harvest price tools available for revenue coverage. These tools enable a grower to insure a crop at its harvest price rather than its price at the time planting in order to take advantage of forward contracting opportunities.

Eliminating it, the researchers found, would “reduce crop insurance protection for nearly 95% of Iowa’s crop farmers…[and] about 80% to 90% of the crop acres in many other states, including Kansas.”

Another anti-agriculture proposal to exclude farmers with incomes over $250,000 from crop insurance benefits would also hit ag country, and it may not just hit large farms.

“Such a policy would likely impact farms that had high levels of off-farm income from a spouse and or other business activities,” according to Barnaby and Taylor. Furthermore, because most farmers’ incomes are tied to crop prices, some growers could be ineligible in some years and eligible in others, creating a compliance nightmare for the USDA and farmers alike.

GAO Forgets Its Own Lesson in Proposing Crop Insurance Cuts

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In the wake of weather disasters in 1983, 1984 and 1988, U.S. agriculture was struggling, and an unparalleled farm debt crisis was only compounding the problem.

Back then, the federal government responded differently to agricultural crises. There was no overall strategy to deal with recurring farming disasters, and responses were generally reactive and after-the-fact.

So, in 1989, the U.S. Government Accountability Office (whose name has since changed from the General Accounting Office) published a report that examined the role of USDA’s three main disaster programs: Ad hoc direct payments, disaster emergency loans, and crop insurance.

GAO compared the effectiveness of these three programs, using eight different criteria that weighed the ability of the programs to deliver at the lowest possible cost, provide a disincentive to risky operations and pay farmers for actual losses, among other points.

The report concluded that “crop insurance is a more equitable and efficient way to provide disaster assistance,” than both taxpayer-funded disaster payments and emergency loans.

GAO recommended strengthening crop insurance to ultimately serve as the primary program for providing farm disaster assistance. And in 1994, President Clinton signed the Federal Crop Insurance Reform Act, which restructured crop insurance to increase farmer participation, increase the private sector’s role, and enhance provisions of the crop insurance program for farmers.

The GAO’s report and the 1994 Act set the stage for the affordable and widely available crop insurance system we have today, with modern products like revenue coverage that help farmers plan for not only weather-related disasters but the massive price fluctuations in the global market.

And, instead of ad hoc disaster relief bills, farmers now help cost-share their own farm policy, paying $50 billion out of their own pockets in the last 17 years for insurance coverage. Farmers also absorb the first 25 percent, on average, of any loss before their coverage kicks in.

The system is also much more efficient and accountable than direct government payments because private insurance companies sell policies and pay indemnities only after verifiable losses.

Fast forward 28 years and it seems the GAO has forgotten its own lesson. The GAO, in a July report, recommended effectively dismantling the same crop insurance system that has become a cornerstone of America’s modern-day farm policy. Specifically, GAO proposes changes that would weaken the very private-sector delivery system that provides aid efficiently and reduces taxpayers’ risk exposure – a plan that would ultimately lead to more government dependence.

The recent GAO report, in essence, advocates a return to a prior era, back when farmers, lawmakers and taxpayers were equally frustrated with the way rural America received needed support.

Luckily, most lawmakers aren’t giving the recent GAO report the same warm reception its counterpart received decades ago.  It’s already been criticized by Senate Agriculture Committee Chairman Pat Roberts (KS), who said, “Now is not the time for additional cuts to a program that producers rely on.”

He’s exactly right.  A financially stable agricultural sector is fundamental to the well-being of our economy and society, and crop insurance is fundamental to agriculture’s success.

Farm Credit Services Report Touts Crop Insurance

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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.”

Eliminating Farm Policy Punishes America and Rewards Foreign Competitors

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The news has been full of foreign subsidy stories lately – whether it’s the trade case America filed against China for excessive corn, wheat and rice subsidies, complaints about Thailand’s sugar subsidy scheme, or the WTO reporting growth in trade restrictions around the globe.

It is under this backdrop that some of U.S. agriculture’s fiercest critics have begun lobbying for the complete elimination of America’s crop insurance system, which was made the centerpiece of U.S. farm policy during the 2014 Farm Bill.  In other words, getting rid of America’s farm safety net at a time when our foreign competitors are expanding their subsidies.

So what would such a scenario look like if it were to come to fruition?

Art Barnaby, an economist with Kansas State University, and Levi Russell, an economist with the University of Georgia, provided a pretty good snapshot in a peer-reviewed paper that they recently wrote for Choices Magazine.

Among their findings:

  • Land values would fall.
  • America would have fewer farmers as consolidation would be inevitable.
  • Beginning and young farmers would suffer the most due to limited equity.
  • America would be less competitive on a global scale as foreign nations would continue to subsidize and erect barriers to U.S. farm goods.
  • Regulatory burdens on U.S. producers, such as EPA regulations, would disadvantage American producers even more.

As for the critics’ hypothesis that a new private-market insurance system would be there to pick up the slack, the authors warn:

It’s unlikely that a free market crop insurance industry would form unless all government subsidies were eliminated. Few farmers would be willing to pay the higher premiums required by a fully-private market as long as the USDA infrastructure is in place for some future Congress to provide ad hoc disaster aid or other cash transfers to farmers. Congress would need to close all forms of support including commodity program payments, disaster payments, and conservation payments. If not, producers would be reluctant to pay unsubsidized premiums for fully-private insurance and would instead push for the reinstatement of disaster payments using the existing infrastructure.

Put another way: Be careful what you wish for.

Eliminating U.S. farm policy in isolation would have devastating consequences for the rural economy and America’s efficient agricultural sector, while rewarding bad actors on the global stage who are eager to seize U.S. market share with the aid of subsidies.

Praise in High Places for Crop Insurance

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From South Dakota to Washington, D.C., crop insurance received praise in high places for its ability to help farmers and ranchers withstand the perils of growing food and fiber.

“Crop insurance provides protection against the one thing that even the most resilient farmer cannot defeat – the wrath of Mother Nature,” wrote Scott VanderWal, the president of the South Dakota Farm Bureau and the vice president of the American Farm Bureau Federation, in an editorial published this week in the Argus Leader.

Highlighting the importance of agriculture to both the nation’s economy and to South Dakota, VanderWal makes the case that crop insurance plays a vital role in ensuring a secure and affordable food supply by providing a safety net when the farm economy is hurting.

“It’s essential that we preserve S.D.’s farm economy, not just for our economic well-being, but for all Americans,” he explains.

Meanwhile, in another part of the country, Ken Ackerman, the former manager of the USDA’s Federal Crop Insurance Corporation, along with his partner at Washington D.C.’s OFW Law Firm, Marshall Matz, penned an opinion piece that examined the steady growth and improvements to crop insurance since it started nearly 80 years ago and the need to preserve the program going forward.

“Today’s modern crop insurance system is a vast improvement over what existed just a few decades ago,” they write. “Sheer numbers tell much of the story. Federal crop insurance today covers almost 300 million areas of American farmland, over 90 percent for major commodities and over 70 percent for specialty crops, representing over $100 billion in insurance guarantees.”

As Congress soon begins work to reauthorize a new farm bill it will be crucial to grow support for crop insurance and sound farm policy so we can maintain and build upon this success.

As VanderWal concludes, “Old-fashioned hard work, innovation, and smart farm policies like crop insurance…will secure a bright future for us all.”

New Video Spotlights Public Support for U.S. Farmers, Farm Policy

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America’s farmers and farm policies, including crop insurance, receive overwhelming, bipartisan support from voters, according to a new video released today by National Crop Insurance Services (NCIS).

The video comes after the Republican and Democratic parties wrapped up their national conventions, moving America into the heart of the election season.

“As the first Tuesday in November approaches, voters will be busy examining candidates from the left, candidates from the right, and hoping they won’t be left behind,” the video states. “But there’s one thing almost everybody can agree on: America’s farmers and farm policies are moving the country forward.”

The educational piece is based on results from a recent public opinion poll showing that nearly 90 percent of U.S. voters have a favorable view of farmers, with 92 percent agreeing it is important to provide farmers with federal funding.

NCIS’ video also illustrates that the majority of voters prefer crop insurance, which is delivered by private companies instead of the federal government and partially funded by farmers.

“That’s a winning set-up in most voters’ minds,” it states. “Nearly 80 percent of whom said they approved of farmers getting discounts on crop insurance premiums, with nearly three-fourths applauding farm policy’s current cost-sharing structure.”

These results, the video continues, shouldn’t be a surprise as eight in 10 voters agree that a strong and thriving farming industry is critical to America’s national security.

“So while agriculture’s critics may continue their unrelenting, misguided fight on farmers and farm policy,” it concludes, “the numbers show that Farm Country will have a powerful ally in its corner this November and beyond…the American people.”

A Secure Nation Begins with a Secure Food Supply

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“I firmly believe that America’s first line of defense is our ability to feed and clothe the people,” Major General Darren G. Owens warned the House Committee on Agriculture during a recent hearing that focused on testimony from military leaders to highlight the link between agricultural production and national security.

Maj. General Owens continued to explain, “we would all be dependent on other nations” that would put our food security and national security at risk without strong agricultural production in this country.

These sentiments echo the beliefs of most Americans according to a recent national poll that the National Crop Insurance Services (NCIS) commissioned. By an 81 to 15 percent margin, voters polled said that, “a strong and thriving American farm industry is critical to American national security” with 92 percent of voters supporting federal spending to help farms and farmers.

In particular, Americans support crop insurance because it is a shared investment with a shared return for both farmers and taxpayers. Farmers purchase policies to protect their crops from catastrophic events and only receive an indemnity when they suffer a loss. The federal government discounts policy premiums to make policies affordable. Farmers have the peace of mind to know they can make it another year if a single hailstorm, flood, or drought destroys their crops. Taxpayers have assurances that they are not on the hook for costly, unbudgeted disaster assistance when calamity strikes.

“From my perspective, food security is first of all about ensuring that the plentiful supply of high quality food and agricultural products that we enjoy continues to be available,” said Major General James R. Sholar who also testified at the hearing.

Crop insurance ensures everyone has an affordable and secure food supply, which ultimately makes us a more secure nation.

ICYMI: Trust the ag lender, crop insurance cuts would most harm family farms

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This is the time of year when farmers are meeting with their lenders to renew farm operating loans for 2016. The past few years have been challenging for producers as commodity prices have fallen, input costs have risen, and severe weather has damaged or destroyed entire crops.  With the downturn in the ag economy, multiple years of lost revenue and less than favorable forecasts for 2016, many producers are facing the tough question: can I afford to continue farming?

Without access to capital, the answer to this question is a resounding no.

I’ve worked in the ag finance business in Texas for more than 30 years and have seen highs and lows in the farm sector. Though those in agriculture have always faced risks, those risks have escalated over the past two decades. Volatility has become the norm rather than an infrequent event. In the last five years farmers have experienced a multi-year drought, hail storms in October, late spring freezes, and too much rain literally drowning their crops. Prices for farm commodities have dropped drastically to below the costs of production as foreign subsidies and market-manipulating policies have drastically risen.

As a way to mitigate these risks and make access to capital possible, Congress selected crop insurance as the primary risk management tool for farmers in the last farm bill. The modern crop insurance system in place today replaced ad hoc disaster relief programs ensuring farmers would have some protection against natural disasters. Congress designed crop insurance to be affordable to the farmer, yet accountable, requiring producers to pay premiums for the insurance coverage on their crops and shoulder a portion of losses through deductibles.

In the cotton industry, a major crop in the 43 counties served by AgTexas, crop insurance is basically the only risk management tool available to producers. It can literally make the difference between farming another year or losing so much a farmer must call it quits.

From the lending perspective, crop insurance provides a guarantee of a minimum income for a lender to rely on to repay loans should a farmer lose a crop. This insurance guarantee makes it much easier for producers to obtain the financing they need to farm. This is similar to the guarantee any car owner would have on their car loan if they got into an accident. Crop insurance is a safety net for some of the events that cannot be controlled.

For perspective, an average family farm in the panhandle of Texas farms between 1500 to 2500 acres and must borrow $500,000 to $1 million each year to produce a cotton crop. Because of the low price of cotton and the high input costs in 2015, many had farm losses exceeding $150,000.   On top of the loss, they still have loan payments, living expenses, and the same farming costs to keep operating another year.

As producers and ag lenders work together to prepare cash flows for 2016, it is extremely difficult to forecast enough income to cover operating loans, meet debt payments, and pay living costs. Especially vulnerable are the young and beginning farmers who face these challenges with limited financial resources. These young producers and multi-generation family farms are the most affected by the volatile prices, increased production costs, and weather uncertainty in their operations.

Some in our country wish to do away with farm programs and any support of a crop insurance system that supports farmers and ranchers who produce the food and fiber that not only feeds and clothes our nation, but also serves other nations around the world. The reality is, without a viable, affordable crop insurance program most of these producers’ businesses will not survive. And if farmers go under, the Main Street businesses they support are not far behind.

Scotty Elston is the Chief Credit Officer at AgTexas Farm Credit in Lubbock, TX. This op-ed appeared in the Southeast Farm Press on June 20, 2016.

NFU Concludes Convention Season in Style

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The first quarter of the year is always busy in agricultural circles, with most farming organizations – including the National Crop Insurance Services – holding annual conventions to discuss the issues likely to face farmers in the upcoming year. The National Farmers Union’s show usually completes the pre-Spring meeting circuit, and this year they are doing it with a packed program that kicked off over the weekend. President Barack Obama addressed the group via video. Agriculture Secretary Tom Vilsack is there in person. And attendees will also hear from Minnesota Gov. Mark Dayton (D), U.S. Senators Al Franken (D-Minn.) and Amy Klobuchar (D-Minn.), and retired U.S. Army General Wesley Clark.

Amid these headliners will be one of crop insurance’s own, Jim Korin, the president of QBE NAU, who will tell the group why crop insurance must remain affordable, available, and economically viable to succeed in the future.

Crop insurers appreciate NFU’s invitation to address its members, and we certainly appreciate NFU’s support of a strong crop insurance system throughout the years. The organization was an essential component of the coalition that beat back legislative attempts last year to reopen the Farm Bill and weaken farmers’ primary risk management tool.

To say thanks, we wanted to spotlight a couple of great quotes from Farmers Union leaders:

“The evolution to crop insurance has effectively moved risk management away from the public sector, funded exclusively by taxpayer dollars, and toward the private sector, where farmers and crop insurance companies help shoulder part of the cost of natural disasters. This is good for taxpayers because it takes them off the hook for the entire bill when disaster strikes, good for farmers who must always keep their risk management plan in mind, and good for rural America because farmers are the engines that generate economic activity.”

Kent Wright, President Northwest Farmers Union
Capital Press, June 18, 2015

“With three consecutive negative farm income forecasts, we simply cannot afford to undercut the farm safety net. NFU urges Congress to reject…crop insurance cuts, as it has in years’ past.”

Roger Johnson, President, National Farmers Union
NFU Press Release, February 9, 2016

Thanks again for your continued support, NFU members. And have a great show as you close out the farm convention season in style.

Thank You, Commodity Classic Participants

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This week kicks off the Commodity Classic, a huge trade show sponsored by the corn, soybean, wheat and sorghum industries.  As agricultural leaders gather to discuss current issues and set policy priorities for the coming year, we wanted to take a moment to thank farmers from each sector for their continued support of crop insurance.

These farmers told Congress that crop insurance was their top priority in the 2014 Farm Bill and urged lawmakers to “do no harm” during the debate.  They stood up for their top risk management tool and fought hard to beat back attempts late last year to cut crop insurance funding.  And their trade organizations recently sent a letter to lawmakers (link to PDF) asking that the system not be weakened this year.

Some leaders from these industries have even taken to the nation’s newspapers to pledge their support.  Here are just a few examples from the past year:

“Mother Nature is the toughest, most unpredictable boss.  Farmers are resilient and they adapt, but a safety net is crucial to their survival.  And it’s not a safety net if it’s not affordable.  That’s what today’s crop insurance offers farmers.  A safety net that is both affordable and widely available.”

Wade Cowan, American Soybean Association

High Plains Journal, April 6, 2015

“The food security we enjoy in this country is made possible in no small part through United Stated farm policy.  With the 2014 Farm Bill, Congress…made crop insurance the centerpiece, and quite rightly….  [I]f it weren’t for crop insurance I would not be in business.  And crop insurance is good for consumers and taxpayers, too.”

Brett Blankenship, National Association of Wheat Growers

The Spokesman-Review, May 24, 2015

“There have been a lot of changes to farm policy through the years to reflect the changing times, but given the diversity of agriculture in our country – and the way crop insurance can be uniquely tailored to address disastrous conditions in an efficient and effective way – it should only be strengthened in years to come.”

Bruce Peterson, Minnesota Corn Growers Association

The Hill, June 3, 2015

“Crop insurance enables farmers to rebound quickly after a disaster and it prevents dramatic farm loss, which in turn allows them to pay credit obligations and fixed expenses.  This system is hugely important for not only farmers, but also to rural communities and the national economy as a whole.”

Tim Lust, National Sorghum Producers

Agri-Pulse, August 21, 2015

Thank you, farm leaders for what you do for this country.  And thank you for what you do to defend crop insurance.

Video:

https://www.youtube.com/watch?v=9UuRiIsofJ8

Just the Facts:

http://www.ncis.staging.wpengine.com/just-the-facts/is-crop-insurance-tar¬geted-to-promote-the-production-of-a-few-favored-commodity-crops-and-biased-against-diversity-in-production-which-lowers-risks-and-may-enhance-sustainability/ 

 

This Drought Just Isn’t Giving Up, But Farmers Aren’t Quitters

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California’s central valley has been called America’s salad bowl, but honestly in the last four years, it looks more like a dust bowl than a vegetable garden.  The historic drought has caused many California farmers to pay prices for water – just to keep their orchards alive – that most Americans would find unfathomable.

Almond, stone fruit, grape and citrus owners once paid roughly $70 per acre foot to ensure that their long term investments had enough water to remain healthy and productive.  That cost is now as much as $1,300 per acre foot – about an 1800 percent increase – all while the retail value of their crops has risen very little in comparison.

Estimates are that 170,000 jobs in Kern County alone are directly connected to farming and harvesting.  But the number of jobs connected to supporting those farmers, growers and harvesters is around eight times that amount.  Crop insurance acts as an underpinning for all of these important jobs and productivity that represent a sizeable portion of our economy.

In the past, a wide scale disaster of this magnitude would have triggered a series of very expensive ad hoc disaster bills paid for exclusively by taxpayers.  But there has not been a single disaster bill passed even though this drought refuses to release its grip.  And that’s because nowadays, farmers are able to purchase the protection and peace of mind of crop insurance.

Crop insurance is a public private partnership whereby farmers purchase policies with their own money, and the policies are sold and serviced by participating companies and agents.

Clearly, the success behind crop insurance is that it’s affordable, viable, and available.  Unlike other forms of insurance, any farmer who wishes to purchase crop insurance can do so, regardless of the size of their farming operation or how many years they may have under their belts farming.

Farmers prefer crop insurance because it allows them to pay a premium to help remove some degree of risk from a very volatile business.   Twenty years ago, many farmers had never heard of crop insurance.  Today, crop insurance protects more than 90 percent of planted acres nationally.

A crop insurance check will never come close to what a farmer can get from a good harvest.   But it does offer farmers some peace of mind so that they know that if Mother Nature gets ugly, they can bounce back and be in business again next year.  That’s good for consumers, who don’t want their food supply disrupted, and good for the rural economy as well.

When I began this career 13 years ago, I was surprised that bankers were making loans without the guarantee of crop insurance.  Obviously, that doesn’t happen much anymore. In fact, it’s very difficult for farmers to get a loan at all without a crop insurance policy in hand.

Of course, crop insurance has its critics who try and make the program sound like another federal handout.  Nothing could be further from the truth.  In fact, when farmers purchase crop insurance, they receive a bill, not a check. And only receive a payment if they incur a loss greater than a deductible amount chosen a year in advance.  Just like homeowners insurance, farmers buy crop insurance hoping they won’t have to use it, but rest better at night knowing they are more secure.

Yes, this drought has been historic and is about as stubborn as a drought can be.  But farmers are hardworking, honest and smart businessmen and women who have armed themselves with the best tools possible to weather this storm.  And crop insurance has ensured that California’s central valley will remain America’s fruit and vegetable garden for generations to come.

Todd Snider is a crop insurance agent, Kern County Farm Bureau director, Bakersfield Homeless Center director, and resides in Bakersfield, California.

This op-ed appeared in the Bakersfield Californian on November 3, 2015.

 

National Peach Council President Says Young Farmers Need Viable Crop Insurance

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chalmers-cropped-297x300National Peach Council President Chalmers Carr said that he wouldn’t be in business today if it wasn’t for crop insurance.  “I do not believe that you would find very many willing lenders to participate in loaning to farming operations without crop insurance being a part of it,” said Carr in a nationally distributed National Association of Farm Broadcasters interview.

Carr hailed the changes in the 2014 Farm Bill that made crop insurance the centerpiece of the farm safety net.  “Mother Nature comes in and deals you a blow that doesn’t happen but every so often, and then you do need insurance to protect yourself,” he said.  “It’s no different than why you carry insurance on your automobile and homeowners insurance and everything else.”

Carr noted that the more farmers who purchase crop insurance the better, since it is less likely that a disaster in one area will affect the overall health and financial viability of the program.  He says that by expanding the program’s reach, crop insurance becomes more sustainable and viable.  “The problem is that young people simply don’t have the money and banks won’t lend money without crop insurance or some kind of support behind them,” he said.  “We have to have a viable crop insurance program to help these young farmers get in and get started in business,” he said.

Carr said that looking ahead, one of the biggest challenges facing farmers are discussions about capping the premium discount crop insurance.  “I would be out of business tomorrow, my 600 employees would be out of business and my bankers would run away from the industry,” he said. “You would see a major change in the Ag lending institutions if somebody started messing with crop insurance.”

Collin Peterson: Crop Insurance Key to Family Farmers, Young Farmers

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Ranking Member of the House Agriculture Committee Collin Peterson (D-MN) warns that one of the biggest dangers to crop insurance is criticism from groups who are trying to undermine the important risk management tool through the appropriations process before the entire Farm Bill is even fully enacted.  “The danger is that some of the people who are making noise about this, if they get their way, they will destroy crop insurance,” said Peters on a recent Agri-Pulse Open Mic interview with Jeff Nalley. “That’s the danger.”

Peterson notes that he has already met with crop insurance companies that are considering pulling out of the program altogether because of the ongoing attacks focusing on profit margins and the premium support offered to farmers.  “I had the underwriters and reinsurance companies in my office asking me questions about where this thing is going,” and explaining that their board of directors are questioning if the company should stay in the business or not.

Peterson explains that what is most concerning is that these questions are coming from the only companies in the business who are offering national coverage.  “If they get payment limitations on big farmers, that will bring this thing down,” he said.  Peterson added that Congress has probably already pushed the participating crop insurance companies farther than they should have with the Standard Reinsurance Agreement (SRA) and the 2008 Farm Bill.  “Hopefully we can explain to people as we fight this fight just how precarious this situation is,” he says.

Peterson says that in a worst-case scenario, we could end up with a situation where entire states can no longer get crop insurance coverage.  “You could have a situation where, for example, North Dakota, for example, would not be able to get insurance,” he said.   “Crop insurance is what keeps family agriculture and smaller farmers going,” noted Peterson.  “It’s so expensive to farm, the banker isn’t going to finance you if you don’t have a way to pay him back, which is what crop insurance does.”

Peterson notes that crop insurance is critical to the future of family farming in the U.S. “The most important thing to keeping family farms and getting young people into agriculture is crop insurance,” he adds.

Listen to the entire interview here.

Former USDA Chief Economist Discusses 40-Year Career, Farm Policy in New Videos

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Renowned agricultural economist Dr. Keith Collins reflects on his distinguished career and the future of farm policy in a series of videos released recently by National Crop Insurance Services (NCIS).

Collins spent 32 years in federal service, where he served as the U.S. Department of Agriculture’s (USDA) chief economist to four secretaries of agriculture and as chairman of the board of the Federal Crop Insurance Corporation for seven years.  After leaving USDA in 2008, he became a consultant to NCIS.

Collins recorded the three videos as one of his last projects before he officially retired from NCIS on March 31. The videos attest to Collins’ nearly 40 years of farm policy experience, during which time he was a witness at 80 congressional hearings; received five Presidential Rank Awards for Distinguished or Meritorious Executive and was elected a fellow of the Agricultural  & Applied Economics Association.  “I have had the best of all possible careers over that period of time,” he said. “I owe a great deal of gratitude to the American farmer for what they have done, for the food that they produced, the way they produced it.”

Collins urged new administrations and members of Congress to recall the farm policies of the past and why decisions were made to make crop insurance the centerpiece of today’s farm safety net. “Look at the program that we have today, look at where it came from, look at how it evolved, how it emerged as the best of many different programs that were tried over the years,” he said.  “And the success of the program has hinged on it being available to producers widely across America, being affordable for producers large and small, and having a private-sector [component] that is financially viable.”

Collins concluded saying, “Looking to the future, we want to prevent anything that would undo the success of this program.”

  • The first video is Collins’ testimonial, chronicling why Congress turned to crop insurance as the foundation of the farm safety net, and it is available here.
  • The second video tracks farm policy’s journey from complete government control to being more market oriented and driven by the private sector.  It can be viewed here.
  • Finally, Collins discusses why affordability, availability and viability of crop insurance are so crucial in the third recording, which can be seen here.

Give Crop Insurance a Chance to Work

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A year after the farm bill was enacted the debate over crop insurance is brewing again. As cost estimates grow for the 2014 farm bill’s commodity program, several members of Congress are calling for program cuts.

These congressmen seem to have forgotten that while the farm bill was being debated in 2012, Illinois was at the center of the most devastating drought in recent memory. The only saving grace — for not only farmers, but also for taxpayers — was high participation levels in the crop insurance program. Having purchased crop insurance enabled [Illinois] farmers to survive the $5 billion disaster.

What’s more, following the drought, there wasn’t a single request for ad hoc disaster assistance. Crop insurance indemnities helped Illinois farmers cover a portion of their losses, pay their bills and get a crop in the ground the following spring.

The 2014 farm bill places even greater emphasis on risk management. And just so everyone understands, with crop insurance farmers don’t receive a check, they write a check. In fact, farmers spend about $4 billion each year for crop insurance coverage from private companies with no expectation of anything but a favorable growing season.

We had a chance to change crop insurance during the farm bill debate. And we did change it. For the better.

Now, let’s give crop insurance a chance to work.

Keith Mussman, is president of the Kankakee (Illinois) County Farm Bureau. This op-ed appeared in the Kankakee Daily Journal on March 18, 2015.

Crop Insurance: From Little Known Law to Cornerstone of Farm Policy

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Although federal crop insurance has been around since 1938, for more than half a century it was largely unknown and underused. Because of this, natural disaster management was mostly done after the fact, in the form of large, costly disasters bills. These bills were not only slow in delivering much needed help to farmers, but also fell full on the laps of taxpayers to fund.

Repeated weather disasters in the 1980s, accompanied by an equally painful farm debt crisis, was causing hardship in rural America and anxiety in Congress about how these expenses would be covered and who would foot the bill.

Concerned that the federal government’s responses to natural disasters had typically been “generally reactive and ad hoc,” House Agriculture Committee Chairman E. “Kika” de la Garza asked the General Accounting Office (GAO) for guidance on how to better manage expensive, recurring disasters.

The resulting 1989 GAO examination and report would help pave the way for a new approach to agricultural policy – one that would ultimately protect 90 percent of planted cropland in 2013 and would help farmers manage back-to-back years of natural disasters in 2011 and 2012.

Specifically, the GAO studied USDA’s three main disaster programs – ad hoc direct disaster payments, disaster emergency loans and crop insurance – and compared their effectiveness using eight different criteria. And while none of the programs satisfied all the criteria laid out, the GAO report pointed out “crop insurance is a more equitable and efficient way to provide disaster assistance” than both direct disaster payments and emergency loans.

The report noted “crop insurance treats disaster victims more equitably” and also “provides farmers disaster assistance more efficiently because farmers generally have more incentive to reduce risk under the program than they do under loan and direct payment programs.”

And so, crop insurance began its journey of improving and evolving as the centerpiece for U.S. farm policy. That included more private-sector involvement, making the program actuarially sound, and encouraging participation.

Even as late as the early 1990s, crop insurance participation rates hovered in the 30 percent range and Congress was often spending considerably more each year in disaster relief expenditures than it was on crop insurance.

The Federal Crop Insurance Reform Act of 1994 restructured things to boost farmer participation, increase the private sector’s role and create the USDA’s Risk Management Agency (RMA). Other important reforms to crop insurance can also be found in the “Blueprint for Financial Soundness,” published in the Federal Register in 1994. Many of these recommendations have been implemented since its publication.

They include:

• Determination of more accurate yields;

• Better tracking of ineligible producers;

• Premium rate adjustments;

• Improved underwriting;

• Better program compliance;

• Introduction of new products to improve participation;

• Increased risk bearing by AIPs;

• Management actions to correct if changes not working.

By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988. But coverage levels on a per acre basis were still low, such that Congress had not been able to break the habit of yearly ad hoc disaster bills.

Then, in May of 2000, Congress approved the breakthrough piece of legislation: the Agricultural Risk Protection Act (ARPA). The provisions of ARPA made it easier for farmers to access different types of insurance products including revenue insurance and protection based on historical yields.

By the summer of 2012, more than 280 million acres were enrolled in crop insurance – just in time for historic drought that would have otherwise crippled rural America.

As a result of these continuous improvements to modern-day insurance program, there have been no calls for ad hoc disaster bailouts – even after the widespread floods of 2011 and Dust Bowl-like conditions of 2012.

In 2013, nearly 296 million acres were protected by federal crop insurance, which represented nearly $124 billion in liabilities, and offered policies covering 128 different crops. Farmers have shown their support for crop insurance with their pocketbooks, spending more than $38 billion out of their own back pockets purchasing premiums since 2000.

Just days after the 2014 Farm Bill was signed into law by President Obama, RMA Administrator Brandon Willis commented about the evolution of crop insurance and why it has become the centerpiece of risk management in farm policy. “There is one simple reason why crop insurance has lasted for over 75 years while other programs have come and gone. It’s because it makes sense … for consumers, for taxpayers and for farmers,” he said.

Farm Bill Reduces the Deficit, Boosts Crop Insurance

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What started off two and half years ago as an attempt to craft a Farm Bill with bold deficit reductions in mind became the new North star of U.S. agriculture policy last week when President Obama signed The Agriculture Act of 2014 into law at Michigan State University.

The law marks a dramatic turning point in American farm policy, with the sun setting of the 18-year old system direct payments – which cost more than $4.5 billion annually – accompanied by a renewed emphasis and commitment to crop insurance.

“This is not your father’s Farm Bill,” said Senate Agriculture Committee Chairman Debbie Stabenow. “From now on, farmers will protect themselves from disaster with risk management programs like crop insurance,” she said. “Instead of getting a government check even in good times, farmers will pay an insurance bill every year and will only receive support from that insurance in years when they take a loss.”

The bill won immediate praise from national farm groups as soon as it emerged from the conference committee in late January. National Association of Wheat Growers President Bing Von Bergen said the bill “ strengthens crop insurance and allows growers the necessary safety net to keep a secure, affordable and healthy food supply.

The sorghum industry issued a statement underscoring their strong support for the bill and applauded the $24 billion it would save taxpayers. “This legislation meets [National Sorghum Producer’s] goals in providing farmers with a number of risk management tools, strengthening and protecting crop insurance, and including strong conservation and energy titles,” said Chairman J.B. Stewart.

The crop insurance industry applauded the years of hard work by both chambers and noted that it was looking forward to working with the Risk Management Agency on implementation of the law. “With one bold stroke of the pen, the President charted a new course for U.S. farm policy, sun-setting the policies of yesterday and putting greater emphasis on farmers’ use of crop insurance,” the industry noted in a nationally-released written statement.

Agriculture Secretary Tom Vilsack noted the bill “will allow the proud men and women who feed millions around the world to invest confidently in the future,” adding, “this legislation is important to the entire nation.”

2014: A New Year, A Fresh Outlook…Spotlight on Crop Insurance

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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 ZachariasTom 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.

Former USDA Chief Economist Details Growing Popularity of Crop Insurance

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Crop insurance continues to grow in popularity, with 90 percent of planted cropland being protected by crop insurance in 2013, former USDA Chief Economist Keith Collins told Agri-Pulse radio host Ken Root during a recent interview on “Open Mic.”

Root asked Collins why he had decided to return to working on crop insurance after his retirement from USDA. Collins noted that he had worked as Chairman of the Board of Federal Crop Insurance Corporation for seven years while at USDA. “I started in 2000 when we had a couple of hundred million acres insured and I watched that program grow dramatically,” he said. “I looked out at the landscape and it seemed apparent that crop insurance was going to be the most important and most powerful program to help the financial security of American agriculture,” he said.

Root pointed out that it took a long time for the crop insurance program to reach its full potential because Congress continually undercut its success with disaster programs. “That is absolutely true,” said Collins. “We had standing disaster programs in the 1970s, ad hoc disaster programs from the 1930s,” he said. Collins noted that when farmers were protected by those other programs, plus standing disaster bills, plus ad hoc disaster bills, “there wasn’t a big need for crop insurance for a lot of farmers.”

Root pointed out that today, farmers and farm organizations are saying that if they could only get one thing from the federal government, it would be crop insurance. “The government supports critical sectors for which there is public interest, and agriculture is one of those sectors,” said Collins. “And within agriculture, what is the primary safety net for famers,” he asked? “It’s crop insurance.”

Root asked if it was possible to get crop insurance coverage for the country without government involvement. Collins pointed out that “Congress has historically said that we’re willing to put more money in to get farmers to buy crop insurance so that we can cover the acreage that needs to be covered in the U.S. to avoid ad hoc disaster assistance and financial disruption.”

Crop Insurance: The New Face of Farm Policy

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From walking on soil baked into near-concrete during the worst drought in over 50 years in 2012, to dredging across flooded fields this soggy spring, farmers are wondering when an “average” year will occur. And that’s just weather. As a 26 year-old farmer, I’m starting to wonder what “average” or “normal” even means.

In my relatively short career, corn prices have been below $2.00 and over $8.00 per bushel, land prices have nearly tripled since I purchased my first field, proposed regulations point to increasing costs without offsetting revenues, and farm policy has evolved from focusing on price supports and direct payments to farmers towards a more market-oriented risk management tool called crop insurance, a public-private partnership whereby farmers purchase policies and only receive a payment if there is a documented loss.

In light of our new “normal” characterized by volatility — in weather, markets, and regulation —farmers would struggle without access to crop insurance. The Farm Bill, which will guide American agriculture for the next five years, is currently being debated in Congress. At its centerpiece is crop insurance, a vital component that is an economic and social development tool for rural America and the new face of farm policy.

The average American farmer is 58, the oldest at any time in our history. Assuming most of us retire at 65, that puts us seven years away from real problems if we don’t start transitioning to the next generation. Crop insurance helps young farmers because it serves as a “stop-loss” collateral source to back credit—a crucial transition tool given the high capital costs of farming. In this sense, crop insurance is a bridge to the future for America’s farmers, as well as a first-rate risk management tool.

Crop insurance is also a working capital tool. But why farmers and not other business sectors? Non farmers do not negotiate with the whims of Mother Nature, cater to consumers in foreign and domestic markets, AND compete with neighbors two miles up the road, farmers two states over and farmers outside our borders to produce a non-differentiated commodity.

Farmers in other countries need to stockpile a large share of their profits into cash reserves planning for a bad year – be it weather, price or market related – so that they have sufficient liquidity when disaster strikes. Because American farmers can purchase crop insurance, we don’t need enormous cash reserves and we can instead reinvest our profits. I have paid down debt faster and invested in newer and more sustainable technologies because I had crop insurance to cover big, volatile losses. Farmers put profits back into their communities and do so more quickly because of crop insurance.

Crop insurance saves taxpayers money. In the past, when disasters struck — and they struck often — the federal government was called upon. Recovery was paid for completely by taxpayers. Last year, when farmers here in Illinois were decimated by drought, we had crop insurance policies and didn’t need a disaster bill to help us plant this year.

Crop insurance is a vast improvement over the price support system and direct payments of the past. It puts emphasis on farmers having “skin in the game” to protect themselves from the risks they deem most likely to occur. It is not uncommon to hear a farmer complain about the money he has spent over the years purchasing crop insurance. It’s a major expense for us, but one we’re happy to pay for because it gives us something this new era rarely allows: peace of mind.

Crop insurance allows market forces to work; we can fail or succeed. Crop insurance is only a buffer, not a guarantee; it is based on historical yields and current prices. It protects “good” farmers — those that apply new technologies, manage risk, and preserve soil and resources — from circumstances beyond their control, like last year’s drought, this year’s flood and the volatile market we now accept as the new “normal.” In contrast, it allows “bad” farmers to fail because, over time, they will tend to have lower yields. The free market still works, just with a buffer that ensures long-term stability in an unstable environment.

Is crop insurance perfect? No. In my perfect world, I want the final 50 years of my farming career forged in a landscape with a stable dollar and interest rate, vastly reduced government regulations, increased free trade and an educated, appreciative consumer. But today, in the real world, crop insurance is the best risk management tool we have. It helps farmers survive the worst of times, reduces costs to taxpayers and allows market forces to work. It’s the new face of farm policy.

Andrew Bowman is a fifth generation farmer, Certified Crop Adviser, and full lines insurance agent, including crop insurance, from Oneida, Ilinois. This op-ed appeared in the Farm Bureau News Service on August 2, 2013.

Crop Insurance Keeps Rural America Healthy and the Country Fed

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Hearings are already starting in Washington on the next Farm Bill, and major decisions will soon be made about which tools best manage the many risks faced by farmers. I count myself as one of the many farmers who will stand together and urge Congress to “do no harm” to crop insurance.

Crop insurance has become the frontline risk management tool for farmers in virtually every corner of this great nation. Crop insurance is a public private partnership whereby individual farmers, like myself, put some “skin in the game,” by purchasing crop insurance policies to manage the many risks we face in this line of work. It does not guarantee profits, nor does it ensure farmers cannot fail. It protects farmers against circumstances beyond their control but does not prevent poorly managed farms from going under. In essence, it allows market forces to work.

Farmers gladly purchase crop insurance, and last year spent $4.1 billion out of their own pockets to do so. And how well is crop insurance working? Last year, most of the Midwest sizzled under a heat wave and drought that cut harvests in half for some farmers and virtually destroyed entire crops for others. When all was said and done, it was the worst drought this nation had seen in decades.

In the past, such widespread destruction in the Food Belt would have ignited a massive call for disaster assistance from Washington. Forty-two such emergency disaster bills in agriculture cost taxpayers $70 billion since 1989, according to the Congressional Research Service. Curiously, after last year’s drought, there wasn’t a single widespread call for disaster assistance for cropland.

And the simple reason why is that 86 percent of planted cropland was protected last year by crop insurance. But crop insurance isn’t just a risk management tool for farmers and a disaster management tool for the federal government; it’s also a rural investment engine for small-town America.

In fact, according to a new study by economists in Lincoln, Nebraska, indemnity payments from farmers who purchased crop insurance generated off-farm economic impact of nearly $2.2 billion across Iowa, Nebraska, South Dakota and Wyoming. That figure includes $721 million of labor income that preserved 20,900 off-farm jobs in the region.

The economists noted “the income from crop insurance payments can play a key role in stabilizing local economies both in the year of the drought and in subsequent years. In agricultural states such as Iowa, Nebraska, South Dakota and Wyoming, crop insurance can also play a key role in stabilizing the statewide economies.”

Here in Illinois where the losses were steep in 2012, nearly $3 billion in indemnity payments flowed back into the state to cover the losses from the drought. And because farmers need to buy seed, equipment, energy, fertilizer and services, they are constantly reinvesting back into their communities. On good years, that money comes from their harvests. On bad years, that money comes from crop insurance.

You see, crop insurance is not only a risk management tool, but also a working capital insurance tool. In short, unlike farmers in other countries, American farmers aren’t forced to bank all of their money on the good years to weather the bad. Instead they can reinvest in their farm and by extension in their communities year after year, generating wealth for other families and much-needed rural development.

For many farmers who are highly leveraged, purchasing a crop insurance policy is nearly a requisite to obtaining a production loan from a bank. And for farmers who are well established and not in need of production loans, the ability to purchase a crop insurance policy allows farmers to pay off other loans faster, generating much-needed economic activity in other sectors. I would not be paying down my debt as quickly if I were required to hold cash reserves in the absence of crop insurance to account for Mother Nature’s whims or volatile futures markets.

There are few things you can count on in farming, and that’s why we are all hoping for a new, five-year Farm Bill. And at its centerpiece, let’s hope there is a strong, vibrant crop insurance policy, a policy that helps keep the ag sector moving when Mother Nature throws us a curve ball; a policy that provides food security to the nation, and the world.

Andrew Bowman is a fifth-generation farmer from Oneida, Illinois.

This op-ed appeared in the Peoria Star Journal on May 18, 2013.

Crop Insurance Costs Americans Two Cents Per Meal, According to CBO Data

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Americans will spend ONLY two cents per meal on crop insurance – the risk management tool most used by farmers to protect themselves from the whims of Mother Nature – through FY 2023, according to CBO’s latest 10-year budget projections. That figure is up from one cent per meal, which was the average cost for the period of FY 2000 to 2011.

Those estimates might come as a surprise to many Americans, who are watching ongoing Congressional action surrounding the five-year, $100 billion per year Farm Bill. But most of that money actually goes towards spending on domestic food programs, with roughly 15 percent directed to farm programs and crop insurance.

The cost per meal figure is derived from CBO’s projected crop insurance program outlays, the Census Bureau’s projections of total U.S. population, the Department of Commerce’s data on consumption spending on food, and the assumption that consumers eat three meals a day.

Total government spending on crop insurance is projected at roughly $8.5 billion per year, with farmers paying $4 billion out of their own pockets to purchase their policies. With the elimination of direct payments in the Farm Bill currently being discussed, crop insurance will be the primary risk management tool available to many farmers, and the only risk management tool available to some farmers, like specialty crop growers.

But crop insurance faces some hurdles in the upcoming House and Senate debate, which could leave it strained or incapable of handling upcoming farm crises. “The U.S. experienced the worst drought in decades last year and we didn’t have a crisis in agriculture,” said Keith Collins, former USDA chief economist. ““Do we want to risk unraveling that?”

Because most farmers carry crop insurance, despite back-to-back years of poor harvest due to weather anomalies, the U.S. farm sector remained vibrant and was one of the driving forces that pulled the U.S. out of the prolonged, deep recession.

Learn more about crop insurance here.

Good Farming Practices Aren’t Always Enough

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It is hard to talk about the state of Alabama without mentioning agriculture. Alabama boasts more than 48,000 farms, covering roughly 28 percent of the state.

But being a farmer in the Deep South – given our weather patterns – is like owning an unpredictable dog. One day it loves you, the next day, it bites you.

In farming, when that dog decides to bite you, it comes in the form of powerful thunderstorms, hurricanes or droughts. That’s why for every year of the last thirty-five years that I’ve farmed, I purchase crop insurance. In fact, I can’t even conceive of farming without crop insurance.

In the past, when large-scale natural disasters hit farmers, Congress was immediately pressured to pass expensive, ad hoc disaster bills that were completely paid for by the public. Such disaster bills, while appreciated by farmers, took up to a year or more to arrive. But farmers need money in hand quickly after disaster strikes, because they must start planning, and purchasing inputs, for the next season.

That’s the beauty of crop insurance. First of all, taxpayers aren’t stuck footing the whole bill if and when disaster strikes. Crop insurance is purchased by each individual farmer, tailored specifically to the crops grown, the land the farm sits on and the farmer’s tolerance for risk.

Crop insurance isn’t cheap by any stretch of the imagination. The policies I purchase cost several hundred thousand dollars a year. But I consider that just a cost of production, because if disaster strikes, I can expect my crop insurance indemnity in about a month or less, not the years it takes for federal help to arrive. Those months saved can mean the difference between success and failure in farming.

Farmers across the country spent $4.1 billion purchasing crop insurance policies in 2012. The policies purchased insured 271 million acres, or roughly 86 percent of all planted cropland in the U.S.

But farmers aren’t the only group that has come to love crop insurance. Bankers love it too. That’s because when farmers approach bankers for production loans, bankers regard a crop insurance policy as a form of collateral. Additionally, bankers know that a farmer who has paid his own money for a crop insurance policy is a farmer who has risk management in mind.

Of course like any other public policy, crop insurance has its enemies. Some of those groups used last year’s historic drought to not only criticize the availability of crop insurance, but to also attack the character of farmers like me, who purchase it. One group said that farmers were “praying for drought, not rain,” implying that farmers would get rich from their crop insurance policies.

I was one of those farmers who suffered from the drought last year and let me set the record straight: We do everything we can to have the highest production possible every year. We select a good variety of seed, purchase the best fertilizer and do everything we can to protect the crop. If there ever were any farmers trying to live off of crop insurance, they’re long gone. The cost of production is just too high.

But if America is going to continue to enjoy its plentiful and affordable food supply, the country must also focus on helping the next generation of farmers to gain their footing and learn the trade. To that end, I am a founding member and Chairman of the National Black Growers Council, which serves as a network for black men and women who are involved in agriculture. Our mission is to improve the viability and profitability of the black row crop farmers, and to develop black talent for the next generation of farmers.

To that next generation of farmers who is seeking my advice, one of the first things I’d tell them is to make sure crop insurance is a line item in your annual budget. Because all of the best farming practices in the world aren’t going to stop Mother Nature from raining on your parade, at least every now and then.

Bill Bridgeforth farms corn, cotton, soybeans and canola and lives in Tanner, Alabama.

This op-ed appeared in the Athens News Courier, on April 26, 2013.

Total Farm Safety Net Spending Drops By Two-Thirds as More Farmers Purchase Crop Insurance

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Total government spending on farm safety net programs – including all commodity programs and crop insurance – dropped by two-thirds from fiscal years 2000 to 2012, according to data provided by USDA and the Congressional Budget Office. The reduction took place as spending on commodity programs – including direct, counter-cyclical, loan deficiency and other payments which once represented the lion’s share of safety net spending – has been slowly phased down in favor of crop insurance, which is partially self-funded through farmer premiums and farmer deductibles.

Inflation-Adjusted Expenditures on Commodity Programs DisasterIn 2000, nearly $28 billion was spent on commodity programs and less than $3 billion on crop insurance. Over the course of 12 years, the overall amount of spending slowly but consistently fell and commodity spending and crop insurance spending equalized. In 2012, total farm safety net spending was $10 billion, and was split equally between the two.

During the same period, while spending on farm safety net programs dropped precipitously, the value of crop sales more than doubled, from roughly $93 billion in 2000 to nearly $220 billion in 2012. This exponential growth in crop values was cited by the Federal Reserve as one of the bright spots that brought the country out of the long recession, by bolstering rural America as well as giving a strong shot in the arm to U.S. exports.

Moving forward over the next two years, crop insurance spending will be up in 2013, due to the 2012 drought. Beyond that, USDA projections show spending on commodity programs will remain flat at $5 billion, while crop insurance spending will decline from the 2013 level. After that crop insurance spending slowly trends up, reflecting the increasing value of U.S. crops and continued expansion of crop insurance products that farmers can purchase. Also, Farm Bills proposed by both the House and the Senate will cut the overall farm safety net even more moving forward.

Keep crop insurance affordable in new Farm Bill

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Bing Von Bergen.jpgThere is a lot of buzz in Washington again this year about the prospects of a farm bill. For those of us in agriculture, a five-year farm bill is one of the few things Congress can do to take some of the guesswork out of farming.

That’s because farming is an inherently risky venture, and Mother Nature never seems to run out of tricks to play on America’s farmers. Floods one year, droughts the next, followed by a year or two of great weather peppered with a tornado, a late-spring freeze, and then a crash in commodity prices just as your crop comes into harvest.

How in the world can one businessman plan for all of those possibilities? The simple answer is crop insurance.

Crop insurance is a nationwide program that enables farmers to purchase insurance to partially protect themselves from both weather-related and market-related disasters. I’ve been a wheat farmer for 34 years, and when I started farming, crop insurance was just a shell of what it is now. Back then, it was not widely available, was not purchased by many farmers, and was completely administered by the federal government.

Today’s crop insurance policy is a completely different animal. It’s partially underwritten by the federal government but sold and delivered by private sector insurance companies, ensuring efficient handling of claims and speedy delivery of indemnities when claims are filed. Today, it protects about 86 percent of planted cropland in the United States.

Most Reliable Safety Net

Farmers today find crop insurance to be critical, and in 2012, they spent $4.1 billion out of their own pockets to purchase its protection. One thing that farmers today can agree on, despite which commodity they grow, is that in the next farm bill, crop insurance is a top priority. It’s our principal, and most reliable safety net.

As unbelievable as it sounds, during last summer’s great drought, which was the worst this country had seen since the Dust Bowl years, there were groups claiming that “farmers are praying for drought, not praying for rain.” People who make an appalling statement like that have no business talking about agriculture.

But those same groups are calling for big changes in crop insurance.

One of those changes is an idea called means testing. In a nutshell, means testing would force many large farmers to pay more for their federal crop insurance coverage, which could keep many of them from buying any crop insurance coverage at all.

Means testing would be a big mistake and could spell higher premiums for all farmers who purchase crop insurance. Why? Because by parsing out the biggest farmers, the pool of insured shrinks and thus the risk for those remaining gets bigger. For example, if a car insurance company excluded the best drivers from their pool of insured, the only drivers left would be those who are the riskiest, and thus the costliest to insure. This fact would drive up the premiums for all remaining drivers.

Risky Montana business

The fact is that farming in Montana is riskier than in other parts of the country because our rainfall is generally much less than in the Corn Belt. The fear for me as a wheat producer is that means testing would alter the mix of those who purchase crop insurance and skew it against those of us who are in the high-risk areas. Premiums in Montana, and through out the rest of wheat country, will go up.

Think about it this way: this country has faced back-to-back years of major natural disasters. The year 2011 saw record floods, freezes, droughts and even a hurricane. Then 2012 was the worst drought we’ve seen in decades. Yet despite this level of farm loss, there wasn’t a single call to Washington for a farm disaster bill for cropland. That’s because most farmers were already protected by crop insurance policies they had purchased for themselves.

When Congress begins its discussion of the next farm bill, crop insurance is sure to be a key topic of conversation. Congress should remember a simple saying that has been my north star through my life: “If it’s not broken, don’t fix it.” Congress should do no harm to crop insurance.

Bing Von Bergen, the president and acting CEO of the National Association of Wheat Growers, is a farmer from Mocassin, Montanta. This op-ed appeared in the Billings Gazette on April 27, 2013.

Farmer Leaders Call Crop Insurance “Most Important Risk Management Tool”

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Farmer leaders from across the country called crop insurance their “most important risk management tool” and said it is essential to keep agriculture strong and bring young farmers into an aging business. The comments were made during a panel discussion at the 2013 crop insurance industry conference in Indian Wells, California.

Curt Friesen, a member of the Nebraska Corn Board, said his son-in-law, who is currently a university teacher, is coming back to his fourth-generation farm. And given the capital requirements and risk associated with farming today, he said, a strong crop insurance policy will be the key to his son-in-law’s ability to succeed.

“He sees a future in agriculture,” Friesen noted. “I’m excited to bring him back but a little scared because I know times aren’t always going to be this good – crop insurance is going to be critical down the road for me to help him get started.”

Crop insurance helps highly leveraged beginning farmers qualify for financing, he told the group at the 2013 crop insurance industry conference. Mark Nichols, a cotton grower from Oklahoma agreed, adding it is important for growers of all ages.

“In our area, whether it’s a guy 25 years old trying to get into farming, or a guy like me in his 50s, it’s not a choice whether we have federal crop insurance,” Nichols said. “Our banks look at it as our main risk management tool.”

Bill Bridgeforth, chairman of the National Black Growers Council, knows first-hand why banks look to insurance as a way to protect a farmer’s investment. A fifth-generation farmer from Alabama, Bridgeforth told the group that he “has used crop insurance every year since 1980.”

“We’ve had some pretty good years, and we’ve had some years that, if it hadn’t been for crop insurance, we probably wouldn’t be in business today,” he explained.

Friesen applauded crop insurers for the speed in which claims were processed following the historic 2012 drought. But crop insurance isn’t just about obtaining financing or surviving disaster, it is also a useful marketing tool, he noted.

“It allows me to market my crop better,” Friesen told the group. “I use it to set a [price] floor. It makes me a lot more comfortable using Chicago Board of Trade futures to market grain. I can market early, I can adjust my positions and I know I’ll have a backstop with crop insurance as my base.”

When asked about critics attacking crop insurance, panelists were quick to defend the public-private partnership, noting its cost effectiveness and the lack of expensive taxpayer-funded ad hoc disaster legislation following the 2012 drought.

Bing Von Bergen, a Montana wheat farmer and director of the National Association of Wheat Growers, also explained that in good years the government makes underwriting gains on crop insurance because farmers pay premiums.

He criticized legislative attempts to reduce crop insurance participation by attaching arbitrary benefit caps, income limits and duplicative conservation compliance mandates to the program. Such attempts, he said, could wind up increasing premium rates for all farmers.

 

Crop Insurance: Smart, Fiscally Responsible Farm Policy

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Every county in the state of Iowa is experiencing severe or extreme drought conditions, according to the U.S. Drought Monitor. This time last near, not a single county in the state was experiencing drought. In fact, it would be fair to say that farmers saw quite the opposite conditions last year, especially here in Western Iowa.

We had water, and lots of it. In fact, counties bordering the Missouri River had thousands of acres of farmland – homes and communities – that were under water for four months. The Missouri River, which is typically less than 1,000 feet wide, was roughly six miles wide from bank to bank.

From a farmer’s perspective, the only thing last year and this year have in common is that crop losses will be steep. But this is the nature of agriculture, where we are blessed with some of the most productive land on earth in the good years, and then the threat of losing an entire crop, back to back, in the bad years. Thank goodness most farmers purchase crop insurance to help us get back on our feet after those bad years strike.

Last year, Iowa farmers shelled out more than $444 million from their own pockets to purchase crop insurance. Crop insurance has become the best risk management tool available for most farmers because it is a public-private partnership that limits taxpayer exposure to risk and helps farmers get back on their feet when disaster strikes.

Prior to widespread participation in crop insurance – which in 2011 protected 84 percent of eligible lands – farmers would often rely on federal disaster relief when a flood, or drought, or both, wiped them out. This disaster relief was not cheap for the taxpayers, who funded a string of relief bills totaling $45 billion from FY1989 to FY2001 for this very purpose.

While the disaster bills were greatly appreciated by the farmers who received them, they took a long time to arrive – up to two years – to get into the hands of the farmers who had lost everything and needed those funds badly.

Because crop insurance is sold, managed and delivered by the public sector, the indemnity checks come in a much more timely manner. In fact, more than $1 billion has already been paid out nationally to farmers who suffered losses this year.

For those worried about federal spending, crop insurance is a smart, fiscally responsible farm policy. It requires farmers who want protection to put some “skin in the game,” in the form of purchasing premiums, and it only benefits those who suffer a real, verifiable loss. As crop insurance has grown in use, spending on farm safety net programs as a whole has dropped from $19.2 billion in 2002 to an estimated $12.3 billion in 2011, a 36 percent decline.

Because we are blessed with great soil and a usually amenable climate, many Iowa farmers – and others in the Corn Belt – rarely collect indemnities. The returns that the companies have made over the years, combined with the $3.5 billion the federal government has made in underwriting gains, will help pay for big losses, like the ones we have experienced back to back this year.

But like all farm policies, crop insurance has taken its fair share of criticism from those in Washington who would like to see a much less robust agriculture sector. These critics are actually using this year’s drought to paint farmers as self-serving and living off the government; people who, according to the Environmental Working Group, are “praying for drought, not rain.”

What nonsense! Suffice it to say that only in Washington DC would a group think that a check for an insurance loss could possibly be anywhere close to as satisfying – both financially and emotionally – as a bountiful harvest. The statement is ludicrous, and would lead one to conclude that people purchase car insurance in the hopes of having a bad wreck and cashing in on that misfortune.

Some rains have returned to Iowa but in most cases, it’s too late for the corn crop, of which 53 percent is considered in poor, or very poor condition. The rains will not renew our crops, but they do remind us of the promise of the future. But promises don’t pay creditors, so in addition to the rain, I’ll be thanking my good instincts for purchasing crop insurance yet again this year. Because I can tell you for certain, that if I hadn’t purchased multi-peril crop insurance this year with the drought, or last year with the flood, I’d be out of the farming business altogether.

Richard Archer is a corn and soybean farmer from Onawa, Iowa

This op-ed appeared in the Sioux City Journal on October 3, 2012.

Montana Farmers Need A Strong Crop Insurance Policy

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There are those who say that the grass is always greener on the other side of the fence. But the opposite can be true as well. Sometimes, it’s not until you look on the other side of the fence that you realize just how green your own grass is.

That’s certainly true this year. After good precipitation in the spring, weather in eastern Montana has been on the dry side since July; but the drought is not yet as severe as that in the Midwest weather is top of mind every year, since I’m a farmer who worries every year when I plant 2,300 acres of durum wheat, peas, lentils, flax and canola.

Last year, it was so wet from spring rains that I couldn’t get all of my land seeded. This year, after a promising start, it has become too dry. Mother Nature can be unpredictable, and a few bad years in a row without a good risk management strategy in place could mean the end of your farming career. That’s why I’ve purchased crop insurance every year since I started farming in 2001.

Crop insurance is a public-private partnership that not only reduces taxpayer exposure to risk, but also saves them money. When disaster struck last year with floods in the Midwest, drought in the Southern Plains and hurricanes on the East Coast, farmers who lost everything didn’t send their representatives back to Washington asking for a big farm disaster bill.

How was that avoided, given the extent of last year’s damage? Farmers didn’t need a disaster bill because 84 percent of eligible crops were protected by crop insurance. Prior to the emergence of crop insurance as the top risk management tool for farmers, natural disasters regularly triggered very costly, unbudgeted ad hoc disaster bills from Congress, costing taxpayers $45 billion from FY1989 to FY2001. Those days are over.

Crop insurance is no small expense for those of us who purchase it, but generally is the best – and in some cases the only – risk management tool available to many farmers nowadays. Crop insurance forces farmers to “put some skin in the game” by purchasing the insurance and taking charge of their own risk management strategies. Here in Montana, more than 16,000 farmers paid more than $85 million to purchase policies to cover their potential losses in 2011.

In the tight financial times we live in, crop insurance is a smart and efficient farm policy. In fact, as crop insurance has grown, taxpayer spending for farm safety net programs as a whole has dropped from $19.2 billion in 2002 to an estimated $12.3 billion in 2011, a 36 percent decline.

While the government pays a portion of a farmer’s premium – which is a way to encourage as much participation in the program as possible – the government and private insurance companies share in the losses and gains of the program. The government has made more than $3.5 billion in underwriting gains over the last several years and that money goes right back into the U.S. Treasury.

With the large amounts of capital required to plant a crop every year, crop insurance is essential for farmers who have to go to banks for operating loans. That’s because the banks see a crop insurance policy as a form of collateral, making their loans to farmers less risky and thus helping to inject billions of dollars into rural America.

Because crop insurance is sold, managed and delivered by the public sector, the indemnity checks come in a much more timely manner. In fact, more than $1.4 billion has already been paid out nationally to farmers who suffered losses this year, with roughly $25 million of that coming to farmers with losses in Montana.

Of course there are those in Washington who seem to forget that they eat three meals a day and criticize every dollar spent on farm programs. They say that farmers in the drought-stricken areas are actually “praying for drought, not rain,” with the implication being that farmers would rather collect a crop insurance check than sell a bountiful harvest. That’s like saying that people purchase car insurance praying for an auto wreck. Not to mention the fact that in many years I purchase a crop insurance policy and don’t collect a dime. Period.

Yes, farming is a risky business, but for those of us who grow food, feed, fuel and fiber for consumers here and abroad, it’s a way of life. Some people might say that the grass is greener on the other side of fence, but because of crop insurance, the grass can be greener on both sides of the fence.

Chris Westergard is a fourth-generation farmer who lives near Plentywood, Montana.

This op-ed appeared in the Billings Gazette on September 30, 2012.

 

Crop Insurance Saved Taxpayers $10.4 Billion Since 2002

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Federal crop insurance has come in under budget every year since 2002 – the last year of major revisions to the program – saving taxpayers more than $10.4 billion in projected spending, according to a new analysis of Congressional Budget Office (CBO) data.

The savings, taken as the difference between the projected cost of the crop insurance program by the CBO and the actual cost of the program, shows that in some years, the CBO overestimated the cost of crop insurance by more than 45 percent.

Year CBO   Estimate($ bil.) CBO Actual($bil.) Difference($ bil.)
2002 2.876 2.818 0.058
2003 3.179 2.906 0.273
2004 3.682 3.366 0.313
2005 3.626 2.242 1.384
2006 3.864 3.291 0.573
2007 4.670 4.374 0.296
2008 7.746 4.146 3.600
2009 7.496 6.767 0.729
2010 7.784 4.547 3.237
Total   Savings $10.4   billion

For example, the difference between projected and actual cost ranges from being 6.3 percent too high in 2007 to 46.5 percent too high in 2008.  In 2010, the most recent year for which final data are available, the CBO estimated the cost for crop insurance would be $7.784 billion, but the actual cost of the program was $4.547 billion, or 41.4 percent lower than projected.

The constant discrepancy is due to the fact that the CBO always assumes that the gross premiums—which include what the farmers pay and the government premium subsidies—will be equal to the indemnities paid out, which in the real world, is almost never the case.

Whenever the gross premiums exceed the indemnities paid, this excess is called the “gross underwriting gain.”  This excess is divided between the Federal Crop Insurance Corporation (FCIC) and the private insurance companies.  When the government’s share of the underwriting gains are positive, they help offset the cost of the premium subsidies provided to farmers.  Such positive gains reduce the actual cost of the program to the taxpayers below what CBO had expected.

And these government underwriting gains and overestimates in the cost of the program have been consistent in recent years, and may continue into the future,    while overestimates are the long running pattern and may continue in the future, although 2011 may prove to be one of the exceptional years given the record indemnities due to drought, floods, hurricanes and freezes.

Despite the size of the nation’s food and agriculture sector and the fact that agriculture has been a major economic factor in lifting this nation out of the long recession, federal investment in crop insurance is less than one-tenth of one percent of overall federal spending.

Strong Financial Underpinning A Key Requisite to Strong Crop Insurance Policy

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Because of the magnitude of risk inherent in U.S. agriculture, combined with the large volume of commodities produced, companies that participate in the Federal crop insurance program are mandated by law to have ready access to large pools of liquid capital so they can meet their obligations if disaster strikes the farming sector. These rigorous financial requisites all but demand the involvement of reinsurers – large, financially fortified companies that provide insurance to insurance companies – to ensure that payments arrive to farmers for the policies they purchase in a timely fashion.

Never before in the history of the Federal Crop Insurance Program was the extent of the risk and financial exposure so evident as in 2011, which saw record indemnities in excess of $10.4 billion paid by private companies to farmers for their losses. This makes 2011 the most expensive year ever, topping the old record set in 2008 of $8.67 billion in indemnities by 20 percent. And with commodity prices rising due to tight markets and increased domestic and global demand, there will likely be an increased need for crop insurance, which protected over $113 billion worth of crops in 2011.

Although crop insurance has already been subjected to $12 billion in federal funding reductions, further reductions could raise questions of the federal commitment to the existence of a robust and effective crop insurance policy. “An unrecognized danger is that additional budget cuts will prove counterproductive in the long run, driving away the reinsurance companies that have long played a crucial role in the program’s growth by putting a substantial amount of their capital at risk,” says Jim Christianson, Managing Director, Guy Carpenter & Company, LLC.

Christianson notes that any pullback by reinsurers would have serious repercussions in the market and would, in the end, leave the federal government and the U.S. taxpayer to shoulder a greater portion of the cost of future catastrophes that hit the country’s agriculture sector.

As recently as the early 1990s, farmers purchasing crop insurance hovered around 30 percent. But the program has expanded dramatically since and in 2011, more than 1.1 million policies were written, covering 83 percent of eligible farmland and 128 crops in all 50 states. And the continued climb in commodity prices means an increase in the amount of risk that will be protected annually.

“Today, reinsurers from around the world find the U.S. crop insurance market to be a welcome addition to their portfolios,” said Christianson.

Reinsurers are keeping a watchful eye on Congress and lawmakers as they write the 2012 Farm Bill. ”Congress should be very cautious about considering the adoption of any other policies that would weaken the already over-extended crop insurance infrastructure or divert the much needed reinsurance investments elsewhere,” he added.

What Does 2012 Hold for Crop Insurance? 

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With 2011 indemnities quickly approaching the all-time record of $10 billion, and farmers preparing to plant another impressive crop just months after the worst weather year in U.S. history, the current crop insurance system is earning high praise from agricultural leaders and lawmakers alike.

But in a new peer-reviewed analysis that appeared in January’s Choices magazine, former USDA Chief Economist Keith Collins and Harun Bulut, National Crop Insurance Services (NCIS) senior economist, explained that many proposals to alter crop insurance policy in the 2012 Farm Bill could hold serious ramifications for farmers and taxpayers, and could weaken the very system that proved so crucial last year.

Among the shortfalls they highlighted: Displacing private-sector crop insurance with duplicative government-run programs; saddling farmers and taxpayers with greater risk exposure; increasing program complexity; increasing taxpayer cost; and reducing farmer participation and coverage levels.

“With deficit reduction in prospect for years to come and insurance so fundamental to risk management in all economic areas, the long-term most sustainable safety net program for farmers may be enhanced crop insurance,” the authors wrote.

Collins, who attended an annual convention sponsored by NCIS, urged people to consider the past and present before writing the future.

“Let’s not lose sight of the fact that the current system took three decades to build and is working as designed,” he said at the conference. “The public-private partnership was created to reduce taxpayer risk by encouraging farmers to purchase insurance from professionals skilled in delivering private-sector payments quickly.”

Since modern-day crop insurance was first created in 1980, participation and coverage levels have grown dramatically. Nearly 265 million acres were insured by $114 billion worth of liability coverage in 2011, up from 45 million acres and $6 billion in coverage in 1981.

“My advice moving forward,” Collins concluded, “consider all consequences before restructuring crop insurance. The unintended consequences could harm three decades of success and upend some of the essential strengths that make the current system so great for farmers and taxpayers.”

 

Nation Cotton Council CEO Says Key Crop Insurance Strength Is Private Sector Delivery

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While a record amount of indemnities – approaching the $10 billion mark – are being paid to farmers for 2011, one of the key aspects of crop insurance that makes it a favorite among farmers is its private sector delivery, which sets crop insurance apart from all other policies, said Mark Lange, president and CEO of the National Cotton Council.

During a recent interview with the National Association of Farm Broadcasters, Lange pointed out that crop insurance’s speed of delivery was well on display in 2011 in West Texas – where many growers didn’t even see their fields sprout – but they had their indemnities in hand quickly, allowing them to farm yet another year. “They are dry land growers, and they are seeing crop indemnities paid prior to Labor Day,” he said.

Lange noted that another strength of crop insurance, from the growers’ perspective, is that “crop insurance policies come in a vast array of styles and coverage and the grower can very closely tailor the specific policy that they are acquiring to their specific farm situation.”

Lange says that Congress has a daunting challenge, since crafting a Farm Bill with elections fast approaching and with budgets declining will not be easy. But he believes that what emerges will preserve the public-private partnership of crop insurance and ensure the long-term viability of America’s food and fiber supply.

“I think it’s clear that the delivery of insurance or revenue programs from the government has a very chilling effect for agricultural producers,” he said, and it takes far too long for help to arrive into the hands of the farmers. “The SURE program, is just now providing benefits for losses that occurred in 2009,” he said. “So here it is in early 2012 and they’re just getting the benefits. That’s just too long.”

To listen to Lange’s interview in its entirety, click here.

Kansas Farmer: One Size Doesn’t Fit All When it Comes to Risk Management

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When it comes to risk management, one size does not fit all, said Kansas farmer Jay Armstrong during a recent radio interview with the National Association of Farm Broadcasters that ran nationally in early December. Armstrong noted that his 2,700-acre family farm is split between upland and bottomland. In years of drought, the upland withers while the bottomland blossoms. In years of wet weather, it’s the opposite.

“So no matter what extreme Mother Nature throws at me I will suffer losses,” he said, adding “my story is the story of many thousands of farmers across this country, who grow our nation’s food, feed, and fuel supply while dealing with Mother Nature’s tantrums, year in and year out.”

Armstrong says most farmers would agree that the single most important item in their risk management tool kit is crop insurance. He says that before federal crop insurance became widely available several decades ago, farming on land like his felt like playing Russian roulette. “It was nearly impossible to get any kind of coverage for managing risks on my farm where flooding or drought was an occasional occurrence because the private sector just wouldn’t offer it.”

“But federal crop insurance took the universality of the public sector and made these important risk management tools available to everyone willing to pay for them,” he said. Armstrong called crop insurance “the quintessential tool” for managing farms risks because each farmer can choose the plan that makes the most sense for their operation

Armstrong also said that crop insurance has made him a better businessman, allowing him to market his grains, including corn, soybeans and wheat, well in advance because they are insured. “If my crop comes up short at the end of the year because of poor weather – or fails altogether – the insurance indemnity is there to purchase the grain to fulfill my marketing contracts at the end of the year.”

Crop insurance was designed by Congress to shield taxpayers from costly weather-induced bailouts that became commonplace in past decades – and Armstrong says it’s working. 2011 might be regarded as one of the worst weather years on record, with crop insurance companies paying out more than $6 billion. But Armstrong points out that with roughly 80 percent of eligible acres covered by crop insurance, there is no need for disaster bills.

Crop Insurance: Private Sector Participation Enhances Policy Efficacy

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Most would agree that the private sector excels at some tasks while the government is better-suited for others. This melding of the private and public sectors has yielded a crop insurance policy with affordable premiums, personalized risk management solutions and a private delivery system that puts needed monies into the hands of farmers when timing is critical.

Crop insurance covers 128 crops, including all major grain crops and cotton, nursery, citrus, rice, potatoes, and livestock. Farmers can cover their crops for all natural disasters, including wildfire, earthquake, volcanic eruptions and even irrigated water issues. Because the policy is personalized, each farmer tailors the policy to match his specific risk and desired coverage.

To date for 2011, the crop insurance program has paid out over $5.7 billion in indemnity payments to America’s farmers and ranchers, and that number will continue to rise over the next few months.

Corn and soybean farmer Quentin Bowen, who operates a family-farm in Humboldt, Nebraska, says that when disaster strikes, the difference in delivery of benefits when comparing government-run programs to the private sector’s handling of crop insurance, is like comparing night to day. “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,” he said in a recent guest column.

Following the submission of recommendations to the Super Committee for cuts in agriculture, major farm groups made clear their strong feelings on crop insurance.

In a letter to House and Senate Ag leaders, The National Association of Wheat Growers (NAWG) stated that “our highest priority for federal investment in agriculture programs is the portion of crop insurance premiums subsidized by the federal government, the public part of one of the most well-functioning public-private partnerships undertaken by our government.” NAWG also reiterated its conviction that crop insurance is the cornerstone policy for risk management, adding, “We believe crop insurance is essential to the farm safety net and the reliable production of an abundant food supply.”

A similar statement from the National Corn Growers Association noted, “the highest priority for NCGA is securing a strong crop insurance program.”

And crop insurance is apparently working quite well this year for America’s farmers, particularly those farming corn, cotton, grain sorghum, soybeans and other crops in drought-ravaged Texas. The October 23 Houston Chronicle reported that more than 41,000 farmers in Texas have received $1.65 billion so far from the national crop insurance program to help compensate for disastrous low yields and other damage caused by the state’s worst drought in history.

“The crop insurance is the linchpin and heartbeat of recovering and muscling through the disasters,” said Karis Gutter, the U.S. Department of Agriculture’s acting deputy undersecretary, who oversees all federal disaster relief efforts and foreign exports. “It will help folks get back to a semblance of normalcy in their lives.”

When farmers are trying to pick up the pieces after disaster strikes, an inefficient payment or delivery system is the last thing they need to be dealing with.

Living on a Prayer

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By John Thamert

Agriculture is collectively holding its breath as the “super committee” meets to determine where the $1.2 trillion worth of federal budget funds will be cut. Having already shouldered more than $12 billion in cuts for deficit reduction in the past several years, farmers and ranchers feel the pain that other sectors have yet to experience.

With this massive overhaul on the horizon, the Senate Agriculture Committee traveled to Wichita, Kansas, late last month to hear from farmers, bankers and local elected officials about what they thought were the necessary components of a strong and viable Farm Bill.

Farmers representing every crop from corn to cotton, bankers who loan to businesses of all sizes, and key elected officials all delivered one main message that was eventually heard all the way back to the halls of Congress: Crop insurance is one of the most important components of farm policy—it should not be touched.

Senator Debbie Stabenow (D-MI), the committee’s chair, recognizes that the upcoming farm bill will not only impact farmers and ranchers; it will also affect those workers who process, package and market agricultural products and services.

This is no small item when you consider that there are over 21 million jobs tied directly to the U.S. agricultural industry.
Obviously, crop insurance is not a policy used by every American—particularly those in urban areas who write about it. But as a banker, a farmer, and a resident of rural America, I see firsthand the benefits of crop insurance and its essential place in a farmer’s arsenal of risk management tools. “Some folks question the need for a Farm Bill with commodity prices where they are today,” Senator Pat Roberts (R-KS), the committee’s ranking member said. “I don’t have to tell this crowd that prices can fall much more quickly than they rise.”

So let me explain why farmers and agricultural lenders from all corners of the country are crying out in unison for maintaining crop insurance.

Crop insurance is a public-private partnership that combines the flexibility and efficiency of the free market with the support of the public sector, to ensure that a modest government investment is able to provide an economic “safety net” for a very unpredictable and high-risk industry.

In so doing, when farmers and/or ranchers experience a severe reduction in their cash flow due to a natural disaster they can depend on crop insurance to cover some of the loss. Any claim paid to a farmer or rancher will create dollars that can be used to cover operating loans from their bank, to pay for fuel, crop and machinery costs; all of which flow through the economies of our country’s small towns and rural communities.

Farmers need crop insurance as an economic “safety net”. Consumers need crop insurance so that they can take comfort in knowing that one of our nation’s premier industries, which provides an abundant and affordable food supply, will remain viable. And lenders need crop insurance in order to be confident that their investment in agriculture will be sound—and around it goes.

One other important consideration is helping the next generation of farmers and ranchers continue our nation’s dominance in food production. Finding a lender willing to invest in a young farmer is hard enough as it is. More often than not, they have very little capital. In these times of rising input costs, a volatile world economy and unpredictable weather patterns, the one thing that lenders and their young farm customers are able to rely on is the crop insurance policy.

“Certainly, farmers here in Kansas know the importance of a strong farm safety net,” Senator Stabenow said at the hearing. “You’ve been dealing with a record drought this year that is devastating crops and livestock production. Suffice it to say, if we ever needed a reminder about the risks farmers face, we got it this year.”

She’s right. Without crop insurance, I’m not sure that my operation would still exist—and the same goes for many of my neighbors—not just in Kansas but in the Texas panhandle where they haven’t seen a drop of rain since October 17, and Missouri, where flooding has left thousands of acres under water and unproductive.

The Senate Agriculture Committee asked for our input: “What are the risk management tools that farmers in the great state of Kansas need? What should an effective farm safety net look like? What are your priorities? What programs can we streamline or consolidate?” And the answer was nearly unanimous: No more cuts to one of the few remaining – and in most farmers’ judgment, the best – risk management tools. If you must cut from agriculture, do not cut crop insurance.

To our farmers and ranchers dealing with severe drought or other natural disasters, these are very trying times; to see high prices without any product to sell and yet have to put out next year’s crop with record high input costs. Without crop insurance, these producers would go out of business as well as cause economic harm to a number of their business providers. I would ask my fellow farmers and bankers to contact their senators and representatives and convey the magnitude of our concerns. Farming without strong farm policy, is nothing but living on a prayer.

John C. Thaemert is a Vice President & Trust Officer at Citizens State Bank & Trust Co. in Ellsworth, Kansas as well as past president of the National Association of Wheat Growers. Thaemert is a third generation farmer who resides in Sylvan Grove, Kansas.

This op-ed appeared in Agri-Pulse on September 6, 2011.