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.