Every American consumer relies upon agriculture for food and clothes. Moreover, agriculture and its related industries are important sectors of the U.S. economy accounting for nearly five percent of Gross Domestic Product (GDP) and nearly 10 percent of U.S. employment. Agriculture is an important sector of the U.S. economy, therefore, it is in the public interest to have a financially stable agricultural sector that produces the nation’s safe and affordable food and fiber supply and supports the rural economy. That necessitates the presence of a publicly-supported safety net for farmers, who increasingly face variable weather patterns that challenge the food production system as well as face unfair competition from foreign countries that subsidize heavily and violate international trade rules. In the United States, a critical part of this safety net is crop insurance. Its importance has been on full display recently, from the widespread drought of 2012 and ongoing dry conditions in the West to the recent decline of crop prices and farm income. In the United States, this safety net is crop insurance, whose need was most recently demonstrated by floods and drought in 2011 and the widespread drought of 2012. In addition to the weather extremities in 2011 and 2012, benefits of crop insurance are being demonstrated with summer 2015 drought in the West and floods across much of the Midwest and East.
Crop insurance is the primary risk management tool farmers use to financially recover from natural disasters and volatile market fluctuations; pay their bankers, fertilizer suppliers, equipment providers and landlords; purchase their production inputs for the next season; and give them the confidence to make long term investments that will increase their production efficiency. Without effective and affordable crop insurance, catastrophic production losses would sap the rural economy by setting in motion a series of harmful events: farm failures and consolidation, job losses, farm-related small business failures, financial stress on rural banks and reduced investment in U.S. agriculture. A financially healthy rural economy requires a financially healthy farm production sector.
Furthermore, by 2050, the United Nations projects a 33 percent increase in the global population with at least a 70 percent increase in demand for food. As the number of consumers expands globally and the climate continues to exhibit more intense weather events, there will be increasing pressure on the global food production system.
In the United States, the ability for farmers to purchase crop insurance is this nation’s “insurance policy” against disruption and financial instability in the food production sector. Crop insurance is also critical in helping new and beginning farmers obtain credit and enter farming to become the next generation of producers that meet the growing global food, fiber and energy needs. The 2014 Farm Bill strengthened provisions for new and beginning farmers by providing them with an additional 10 percent premium discount and allowing them to use higher average yields until their own actual yields are available.
Watch a video that explains why Congress turned to crop insurance as the foundation of the farm safety net.