When the 2014 Farm Bill became law, it marked a pivotal moment in the history of U.S. farm policy. The new Farm Bill eliminated direct payments and replaced them with Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) that farmers must choose between. The Farm Bill also stressed the importance of Federal Crop Insurance by strengthening it and expanding it.
ARC compliments crop insurance by providing an additional 10 percent revenue coverage band at the farm or county level whereas PLC provides protection from consecutive years of lower prices by providing a much higher target price than in years past. Congress has made it clear that ad-hoc disaster bills are a thing of the past and the components of the Farm Bill, in conjunction with a strong crop insurance program, provide a valuable safety net for the producers in times of natural disasters.
Crop insurance ensures farmers have a risk management plan in mind early in the year. In addition to that plan, they must put their money toward purchasing a crop insurance policy. This is no small amount of money for farmers, who in 2013 spent roughly $4.5 billion on crop insurance premiums. Much has been said about the government’s subsidy for crop insurance, but similar to flood insurance, crop insurance wouldn’t be possible without the government’s contribution. Producers get a bill, not a check, at the end of the year for their share of the premium on crop insurance.
Crop insurance has been a work in progress since 1938. In 2013, 90 percent of planted cropland was protected by crop insurance. And when disaster struck – as it did in the historic drought of 2012 – farmers turned to their crop insurance policy, not their Member of Congress, for help.
Crop insurance has been widely praised by farmers, the financial community, and farm leaders from every major commodity organization. But before the ink was even dry after the President signed the bill, crop insurance was already under attack by those who don’t understand the complexities and importance of it to farmers with all sizes of farming operations.
For that crowd, crop insurance has become a new favorite target, and they will stop at nothing in an attempt to both discredit this praiseworthy public-private partnership and the farmers who purchase it. The first assault – on the premium discount – is aimed at trying to increase how much farmers pay for their insurance premiums. We must be very careful to not change the parameters of a system that is fragile and like a house of cards can fall apart if the premium pool is changed.
The critics of crop insurance claim that it benefits the large producer at the expense of the small producer, when in reality every farmer, with the same APH and same coverage plan, receives the same premium subsidy per acre, regardless of the size of their operation. The key words are “per acre.” A farmer with 10 times more farmland will receive 10 times the subsidy but he also incurs 10 times the risk and 10 times the premium he pays.
Means testing raises the premium costs for those affected and will cause reduced participation. If crop insurance opponents are successful, insurance would become more costly per acre to larger growers and force them out of purchasing crop insurance. The effectiveness of crop insurance depends on total enrolled acres.
Just as with any kind of insurance product, crop insurance needs a large, diverse risk pool to remain affordable for all. Anything that removes acres from the program, particularly lower risk acres, erodes the stability of the program and ultimately harms the remaining participants by driving up their costs.
These same growers have the most acres in the program and provide a critical balance in the risk pool to smaller, higher risk producers. This would result in a weaker, more unstable crop insurance system and higher premiums for smaller, socially disadvantaged, or newer farmers who also need this critical risk management tool.
Crop insurance is not a social program, it is a risk management program designed to attract high participation and protect as many farms and acres as possible from disaster and thereby enable steady and stable production of food, biofuel and fiber for the U.S. economy.
As we move forward and critics of agriculture line up to attack, we must ensure that crop insurance remains affordable for growers, available to all regardless of size, and that the public-private partnership remains viable so that it can service those who buy insurance.
Bing Von Bergen is the past president of the National Association of Wheat Growers, and lives in Moccasin, Montana. This op-ed appeared in the Helena Independent-Record on May 1, 2014.