Matt Huie – A Personal Face On The Farming Crisis

My grandparents’ children left the farm in pursuit of city jobs, but I loved everything about that life. So when I got the opportunity to move in with my grandparents at age 16, I didn’t hesitate.

After college, I made the decision to become a full-time farmer. Today, I live on a ranch about a mile from my grandfather—who is still operating part of his cattle ranch at 89—and hope to be able to one day pass on the skills that he passed on to me.

But many farm families are unable to compete with the lure of the city and are finding it harder to locate that member of the next generation willing and able to bear the torch. Without a new generation of farmers stepping forward, the world’s food supply, and Texas’ economy, will be challenged.

The average age of farmers in America is 58, the oldest at any time in our country’s history. Assuming most Americans retire at 65, that puts us about seven years away from real problems unless more young people shun lucrative desk jobs for riskier, and often lower paying, jobs on farms and ranches.

It sounds scary, and it is. But the idea of investing a future in farming is equally as scary for most young people. The expense of raising crops and cattle, the high risks faced every day, and the low returns on investment, is enough to make anyone run in the other, more secure direction.

Keeping Crop Insurance Strong

The 2012 budget will likely include modifications and reductions to farm policy. Policy makers should consider 12 essential strengths that make crop insurance the cornerstone of the farm safety net programs. We’ll introduce one strength of crop insurance per month and explain how the sum of these strengths has given us the successful program we have today.

Strength: Producer indemnities are not capped by arbitrary payment limits.

All farm programs have limits on a producer’s annual adjusted gross farm and off-farm income to be eligible for payments. Farm programs also have annual payment limits for all programs except marketing loans.

There are no income caps to be able to buy crop insurance and crop insurance premium subsidies and indemnities are not limited by income or net worth. Additionally, because crop insurance is tailored to the individual’s specific needs, farmers pay a share of their premiums in proportion to the amount of risk they face.

Issue Brief: Crop Insurance

Issue Summary:

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

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

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

Policy Overview:

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

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

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

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

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

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

Policy Strengths:

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

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

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

Proponents of Crop Insurance:

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

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

What They’re Saying:

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

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

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

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

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

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

Useful Links:

National Crop Insurance Services

Leading Lawmakers Laud Crop Insurance

As the recent budget deal is interpreted and the Farm Bill debate heats up, important members of the House Agriculture Committee are singing the praises of crop insurance and underscoring its prominence as a necessary risk management tool that helps farmers weather adversity.

Both the Chairman and top Democrat on the Subcommittee on General Farm Commodities & Risk Management – which has jurisdiction over farm policy and crop insurance – addressed the sugar industry’s annual conference – The International Sweetener Symposium – held July 29 until August 3 in Stowe, Vermont.

Chairman Mike Conaway (R-TX) outlined some key principles that should guide the writing of the 2012 Farm Bill. The first principle on his list was that the policy must not undermine federal crop insurance. “There is one thing besides faith in God that is keeping Texas producers afloat right now during the worst drought we have seen in years, and that is federal crop insurance. We cannot afford to mess that up,” he said.

The chairman went on to explain just how important a strong farm policy is right now. “Agriculture is the one bright spot in an otherwise grim economic picture,” he said. “We shouldn’t take it for granted and we certainly shouldn’t gamble with it. We need good farm policy. Good farm policy doesn’t cost a lot. However, what history teaches us is that bad farm policy costs too much.”

Congressman Leonard Boswell (IA), the top Democrat on the subcommittee, gave crop insurance his own boost in the arm. Boswell recounted that when he retired from the army and returned to Iowa to farm, he quickly realized that farming had really changed in the 20 years that he had been away. He explained that in the old days, in order to farm, a producer needed access to land and a place to buy and sell a product, like a co-op or an elevator.

“After surviving the farm crisis in the late ‘70s and early ‘80s, I realized the importance of a good crop insurance agent to help me manage my risk,” said Boswell. “I work closely with my agent to ensure that I will never be put in a position that I was during the 1980s farm crisis.”

Boswell echoed Conaway’s sentiment that farm policies are important to ensuring the health and vitality of the nation as a whole. “I share this because I understand the importance of crop insurance in the country and safety net programs across the country that enable producers to provide for their families and feed those across the nation,” he said.

Joining the leadership in speaking out about the importance of crop insurance was Ohio freshman member Bob Gibbs (R), who is a farmer and also a member of the House Agriculture Committee. “I believe that in this next farm bill, the vehicle to protect farmers from weather and price disruptions will be a viable crop insurance program,” he wrote in a recent op-ed in The Hill. “Crop insurance, along with other initiatives such as the ACRE program, can be tailored to reduce risk and protect the viability of our farming infrastructure,” he said.

Gibbs explained that in the next Farm Bill, Congress needs to ensure that risk management tools are in place to help farmers hedge their risks and in turn, ensures a stable food supply for U.S. consumers. “These programs provide farmers with some level of certainty and confidence as they make their management decisions to risk a tremendous amount of capital by putting that seed in the ground,” he said.

House Agriculture Committee ranking member and one of the lead architects of the 2008 Farm Bill, Collin Peterson (D-MN) recently said that there should be no changes to the crop insurance program in the upcoming Farm Bill. “I am against making any cuts in crop insurance…any changes in crop insurance,” he recently told a group of Minnesota farmers. He added that “crop insurance for me is the bottom line,” adding that he fears that at some point in time, it may be the only viable farm policy left.

It’s the Farm Safety Net That Makes Our Success Possible

By Alan Rosendahl

What could possibly be scarier than being a farmer who stakes his yearly income on getting the divine cooperation of Mother Nature? Being the banker who makes the loan to the farmer every year to take that risk.

In a year when both the Mississippi and Missouri rivers have left their banks and Iowans are sandbagging levees while the Southern Plains bake in drought, it’s not hard to understand the risks associated with farming.

Recognizing the inherent and yearly risk in agriculture and the need for the country to have a stable food supply, years ago Congress assembled a set of policies known as “farm safety net programs” to ensure that farmers weren’t knocked out of business because of bad weather or wild market fluctuations. The most important of those policies—and the one that serves agriculture the best—is crop insurance.

As a banker and a farmer, I can tell you first-hand that federal crop insurance is the only thing that makes it possible for us to loan money to small farmers here in Iowa. Banks, like other businesses, need to turn a profit to stay in business. But loaning money to small and beginning farmers can be very risky, because they often have less net worth, and tighter cash flows. Coupled with the fact that small banks are inherently risk-averse, particularly after the banking implosion of 2008, and you see the dilemma.

But federal crop insurance bridges the risk problem because the policy itself serves as the collateral that the farmer needs to secure the loan, lowering or eliminating the risk to the bank altogether and ensuring the loan is made. Crop insurance establishes the floor for the farmer under which he can fall no further, ensuring that although he is small, he will be here to farm yet another year, and perhaps, pass the family farm on to his or her children.

During my long career in the banking business, I have noticed that the most profitable and successful farmers carry the most crop insurance. Why is this? Because successful farmers must be good businessmen, and good businessmen manage their risks. And it’s precisely their ability to manage risks and ensure continuity of production that explains the abundance and affordability of the American food supply. Food is plentiful here in the U.S. because our system is working.

But it doesn’t stop there. A side benefit of crop insurance is that is also serves as a much needed capital lifeline for small towns and rural America. This happens because crop insurance policies establish a cash flow from the farmer to the bank, in what will be the first of many times those dollars change hands.

So how does this happen? The bank takes the money it brings in from farmers and invests it in the local community or makes the funds available as loans to others seeking growth or investment capital. In fact, I’d argue that these dollars turn over multiple times and have major rippling effects benefitting the vast majority of the residents of small towns throughout the Hawkeye state.

The beauty of crop insurance from the taxpayer’s point of view is that it is a public-private partnership where the public helps fund a portion of the premiums yet the bulk of the risk, and the costs associated with that risk, is shouldered by the private sector, not taxpayers.

Unfortunately, farm safety net programs, like other parts of the federal budget, are on the chopping block. That’s why it’s critical that Iowa’s congressional delegation ensures that agriculture is not forced to shoulder a disproportionate part of the burden. Despite its success, crop insurance has already sustained over $12 billion in cuts over the last three years. Any more cuts to the crop insurance delivery infrastructure could undermine the viability of the program, and its benefits to Iowa and all of rural America.

Thankfully, because of federal crop insurance, it’s not scary for banks to make loans to farmers. There are no federal policies that can eliminate all risks to farmers or anyone else. But there are policies, like federal crop insurance, that make risk manageable. And the fact that banks aren’t forced, year in and year out, to take a leap of faith when they make the loan to the small or large farmer is one of those little known facts that makes America’s agricultural abundance the talk of the world.

——

Alan Rosendahl is a Senior Vice President at Iowa State Bank and a farmer who resides in Kesley, Iowa.

This op-ed appeared in the Cedar Rapids Gazette on July 13, 2011.

USDA to Congress: “Crop insurance is a vital part of the farm safety net”

“Crop insurance is a vital part of the farm safety net and has become an integral part of business life for a large majority of American farmers and ranchers,” said USDA’s Risk Management Agency (RMA) Administrator William J. Murphy in testimony before the House Subcommittee on General Farm Commodities and Risk Management.

“[Farmers] would find it difficult to continue providing the United States and the world with an abundant supply of food, fiber and fuel without the protection provided by this part of the farm safety net,” he said in his June 24, 2011, appearance before Congress.

With droughts, floods and other disasters affecting crop production across many parts of the U.S., “this year is an excellent example of how important the farm safety net has become,” said Murphy. “Food security is important to this country. I’d hate to be put in a position where we don’t have these [crop insurance] programs and have widespread losses across the country.”

Murphy detailed the unique public-private partnership which makes the crop insurance program unique and how RMA works directly with its private partners—the 15 approved insurance companies—and the agents who deal directly with farmers and ranchers.

“Producers purchase Federal crop or livestock insurance from insurance agents operating in their communities, who sell the insurance on behalf of the 15 insurance companies,” he explained, noting that “this relationship leverages the respective strengths of the public and private sectors.”

Murphy also explained how participation in the crop insurance program has increased significantly, following changes enacted in 1994 by Congress when fewer than 100 million acres of farmland were insured under the program. “Today, over 250 million acres of farm and ranch lands are covered by Federal crop insurance, for an overall participation rate exceeding 80 percent for the major crops.”

“As the amount of insured acreage has increased, so too has the liability, or value of the insurance in force,” said Murphy. For example, in 1994, program liability was less than $14 billion, compared to the 2011 liability which is estimated to exceed $100 billion. But the program has seen sustained growth as demonstrated by the increasing proportion of acres insured at buy-up levels over the last decade. “Today, over 90 percent of all policyholders purchase buy-up levels of coverage,” he added.

Additionally, Murphy explained to Congress that one of the most important considerations for the Federal crop insurance program is the premium cost for producers. “If premium rates are too high, producers will not participate in the crop insurance program. If premium rates are too low, actuarial performance will deteriorate,” he added.

That is why government involvement is necessary. Without it, affordable and widely available coverage wouldn’t exist. And without crop insurance, farmers would be hard pressed to obtain necessary operating capital from lenders.

Murphy explained many lenders now require crop insurance coverage in order to make operating loans to crop and livestock producers, and many producers use crop insurance as collateral for the loans.

AFBF’s Thatcher Discusses Crop Insurance as a Key Part of Farm Safety Net

There are going to be more challenges to the writing of the 2012 Farm Bill than agriculture has ever seen, said the American Farm Bureau Federation Senior Director of Congressional Relations Mary Kay Thatcher, during a recent interview with the National Association of Farm Broadcasting that ran nationally.

“We don’t have as much money to write the Farm Bill as we did in 2008,” noted Thatcher, who added that another challenge is the large number of urban members of Congress who believe that farmers are getting rich off of strong crop prices this year.

Thatcher explained that good prices come and go and inclement weather can strike at any time, which is why it is important to remember that Farm Bills cover a number of years and that crop insurance is a very important component of the legislation. “It’s just a real good risk management tool. We’re able to have famers pay part of the premium and government pay part of the premium to make it affordable,” she explained.

Thatcher pointed out that crop insurance ensures that if we have tough weather like “wildfires in Texas and flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”

Thatcher urged all areas of agriculture to come together during the upcoming debate, using all of our voices to push for as much political influence as possible. “We don’t just compete with the farmers down the road, we compete with the farmers of the world,” she added.

The 2011 Crop Year is Off to a Challenging Start

The hopes of the largest and most profitable harvest in U.S. history are being placed into question by a series of historic weather events that are inflicting major damage to America’s agricultural heartland.

A cold spring followed by heavy, constant rain and flooding in the corn belt has resulted in extensive delays in plantings with only about 63 percent of the U.S. corn crop being planted to date – considerably less than the five year average of nearly 75 percent – according to the May 16th USDA Crop Progress report.

Illinois, the second largest corn producing state, is still lagging behind the national average with only 69 percent of the crop being planted, compared to the average of 74 percent over the last five years.

In other states, the news is much worse. In Minnesota, the fourth largest corn producing state, only 47 percent of the crop has been planted compared to the historic average for this date of 81 percent. Indiana, the fifth largest corn producing state only has 29 percent of its crop planted. Ohio, the seventh largest corn state is still in the single digits at seven percent compared the historical average of 70 percent and North Dakota finally broke into the teens at 14 percent.

The National Agricultural Statistics Service shows that more than half the winter wheat in Kansas – the nation’s largest wheat producer – is now rated in poor to very poor condition. Reports are even worse to the south, where 80 percent of the Oklahoma winter wheat crop and 75 percent of the Texas crop are in poor to very poor condition. Among the 18 major winter wheat-growing states overall, 44 percent of the crop is rated in poor to very poor condition.

The flooding that has swept through the Midwest and is moving south will result in further damage to this year’s crop.

Underpinning the vast majority of these crops is crop insurance, which according to estimates by National Crop Insurance Services (NCIS), would be written for at least $110 billion worth of crop insurance liability this year, the largest amount in U.S. history. Farmer participation in crop insurance continues at historically high levels. In fact, in 2010, nearly 80 percent of the U.S. crop – 256 million acres of farmland – were protected by crop insurance.

“The advantage of protecting our farmers with crop insurance is that when Mother Nature strikes as she is doing this year, it will be private industry working with USDA to ensure that we maintain financial stability for our agricultural production sector, ” said Tom Zacharias, NCIS president.

“The crop insurance industry is deeply concerned about the recent flooding situations and damage to this year’s crop. At this time, it is too early to tell how severe the damage will be, but in partnership with USDA, the industry stands ready to assist insured farmers in assessing the damage to their crops and farmland,” said Zacharias. “The federal crop insurance program is designed to provide protection for farmers affected by natural disasters, which unfortunately occur in the unpredictable and volatile business of agricultural production,” he added.

2012 Farm Bill Should Hold The Thin Green Line

Minnesota has more at stake than most in 2012 farm bill.

Rural America has been abuzz lately about a term coined by retired Army Gen. Wesley Clark to describe the challenge of feeding more and more Americans with fewer and fewer farmers. His phrase, “hold the thin green line,” sums up what many of us have spent a lifetime trying to convey.

“If we cannot feed, fuel and clothe ourselves, then we cannot defend ourselves. If this one bright spot in our economy is choked off, then recession recovery will certainly stall,” Clark said.

Here in Minnesota, we have more at stake than most when it comes to holding the thin green line.

Almost half of the state’s land is devoted to food production, one-quarter of our residents are employed by agriculture, and we are national leaders in producing staple crops such as corn, wheat and sugar. So how does Minnesota build on this success story? It all starts in the halls of Congress with debate of the 2012 farm bill, and that debate is about to get under way.

Some lawmakers are already taking aim at agriculture. Some are pointing to federal budget deficits as an excuse to cut gaping holes in the farm safety net and leave Minnesota’s economy vulnerable to the whims of Mother Nature and the roller-coaster rides of current commodity markets.

Such attempts are as foolish as they are disingenuous, especially when you consider the current state of farm budgets. The sugar policy that underpins the state’s Red River Valley, for example, costs taxpayers $0. Some policy replacements that have been proposed in the past would cost $1.3 billion a year or more.

Meanwhile, the policies in place to help the state’s corn, soybean and wheat growers hedge risk continue to operate under budget and represent less than one-quarter of 1 percent of federal spending.

Then there’s arguably the most important tool to Minnesota farmers: crop insurance. Crop insurance was specifically designed to shield taxpayers from mega-payouts that could result from catastrophic situations such as commodity price collapses and weather disasters.

By helping farmers afford insurance policies that would otherwise be cost-prohibitive, the government is able to stretch tax dollars much further. The 2010 crop is a prime example – every dollar spent by the government yielded $20 worth of protection for farmers. And this divide is expected to grow in 2011.

If you doubt the need for crop insurance, just look at recent data from the National Weather Service, which shows that excessive snow in the Great Plains and Midwest may leave more of the state’s valuable crops under water than the 2009 record-setting floods.

Now is not the time to weaken crop insurance and put taxpayers – instead of private insurance companies – on the hook for picking up the pieces. If anything, discussions should be centered on ways to strengthen crop insurance and the rest of the safety net. After all, there’s far more at stake than farmers in the next farm bill.

Widner is chairman of the American Crystal Sugar Co. and grows sugar beets, wheat and soybeans in Stephen, Minn.
This article appeared in the Fargo Forum on April 24, 2011.

Keeping Crop Insurance Strong

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

Strength: Producers receive an individualized risk management solution.

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

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

Crop Value, Crop Insurance Coverage At Record High

At least $110 billion worth of crop insurance liability – the largest amount in U.S. history – will be written this year, underscoring the popularity of crop insurance and the growing value of agricultural commodities, according to National Crop Insurance Services (NCIS).

“The value of our agricultural output is at an all-time high,” said NCIS President, Tom Zacharias, at a March 8 news conference. According to the Federal Reserve Bank this is helping to fuel the overall economic recovery in the U.S.

Best of all, Zacharias noted, “If disaster strikes and puts the valuable 2011 crop at peril, it is the private sector delivery system, and not the U.S. taxpayer, who will be the first line of defense to ensure that America’s farmers do not suffer severe financial hardship due to events out of their control.”

In a recent guest opinion article in the Traverse City (Michigan) Record-Eagle, Zacharias noted that it is easy to see why crop insurance has gained so much popularity with farmers, pointing out that more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. “Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010,” he added.

Crop insurance was designed by lawmakers to combine the strengths of the government and private sector to best leverage taxpayer investment. The government’s main role is to regulate the business and subsidize farmer premiums making coverage more affordable and practical for farmers who greatly need tools to hedge their risks. Farmers purchase the policies and pay for a portion of the premiums out of their own pockets. The policies are sold by licensed agents and serviced by private insurance companies.

“Without the crop insurance program that we have in place today, U.S. agriculture could be facing a liability of $110 billion, should farmers get hit with a catastrophe in 2011,” noted Zacharias. “That would be unsustainable. Congress should be applauded for structuring a system that achieves so much return on investment,” he added.

Every dollar of investment achieved $20 of protection last year – a gap that should grow substantially in 2011. Zacharias says that he hopes Congress will consider this return on investment as it begins writing the 2012 Farm Bill.

Michigan Senator and Chair of the Senate Agriculture Committee, Debbie Stabenow (D-MI), recently outlined her principles for the upcoming Farm Bill, urging us not to look at the 2012 Farm Bill under the lens defined by budget concerns or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.” She added, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.”

Michigander and crop insurance agent, Mike Gaynier, echoed the importance of the farm safety net to the state’s diverse agriculture sector during a recent national radio interview. “Crop insurance provides protection to producers of Michigan’s lucrative specialty crops — like the well-known tart cherry crop, or important grains like corn, wheat and soybeans — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers,” he concluded

Farm Bill Principles and Crop Insurance

America’s abundance of affordable and nutritious food is the envy of the world. This is not an accident, as our long history of investment in agricultural infrastructure has made this possible. Underpinning this system is crop insurance’s modern public/private partnership that provides a safety net for farmers, helping them manage price and weather risks.

USDA’s Agricultural Outlook conference speech by Sen. Debbie Stabenow of Michigan, chair of the Senate Agriculture Committee, outlined her principles for the upcoming Farm Bill. She urged us not to look at the 2012 Farm Bill under the lens defined by budget cuts or specific programs but instead from principles like “creating the best safety net and the best tools possible for managing risk.”

Ask any Michigan farmer — or any American farmer — what fits this bill, and crop insurance will be among the first responses. Crop insurance provides protection to producers of the Great Lakes state’s lucrative specialty crops — like the well-known tart cherry crop — should prices crash or Mother Nature deal an unwelcome blow. In fact, it is the only safety net tool available for most fruit and vegetable growers.

It is easy to see why crop insurance has gained so much popularity with farmers. In fact, more than 1.1 million policies covering 256 million acres across the U.S. were written in 2010 to deal with risks. Nationally, this public/private partnership enabled the government to turn a modest investment into nearly $80 billion in protection in 2010.

Stabenow wants the Farm Bill to be based on the notion that farmers know better than anyone else what works for them. A major strength of today’s crop insurance program is that it allows farmers to create individualized risk management solutions tailored to their specific risks.

When catastrophe hits, the only thing protecting many producers from bankruptcy is crop insurance, which is streamlined by the efficiency of private sector delivery. And banks are increasingly relying on crop insurance, knowing fully that the money they loan farmers for food production is partially secured by this program.

Unfortunately, this risk management tool has been put under the budget-cutting microscope in recent years. Lawmakers in search of budget offsets for other, often non-farm priorities, have already substantially reduced funding.

Bill Murphy with USDA’s Risk Management Agency recently cited an agency report that indicated current investments in crop insurance are delivering a significant bang for the buck. The persuasive attributes of crop insurance, despite the funding reductions already taken, underscore a program that is cost effective and sustainable.
The U.S. agricultural sector is a source of deep economic strength and stability. As weather-driven crop failures globally cause price fluctuations and food shortages we should be heartened by our fiscally sound crop insurance policies. As Stabenow also noted, “We need an effective safety net so that we aren’t watching family businesses go under because of a few days of bad weather or market factors outside of their control.” Indeed, crop insurance is attempting to meet this need not only in Michigan, but nationwide as well.