Right Hand and Left Hand

December 15, 2009

By DeVonna Zeug

It’s an odd thing—on one hand Uncle Sam is looking for ways to spend hundreds of billions of dollars to spur jobs creation and economic recovery while on the other hand Washington is proposing a plan that I fear will destabilize crop insurance that we farmers need, lenders require, and billions of dollars in economic activity and thousands of American jobs depend upon.

It’s also troubling that, once again, Washington’s policies come at the expense of rural America.

Private insurance companies and their agents and adjusters provides coverage on roughly 270 million acres and more than 100 different crops across the nation according to the terms of their contract, called the Standard Reinsurance Agreement (SRA).

While work remains to be done to ensure that all crops and regions of the country are fully served by crop insurance, for Minnesota farm families and for thousands of farm families across the country crop insurance is indispensable. For farmers and livestock producers who face tremendous risks each year (we borrow more money each year than most people do in a life time), crop insurance has provided increasingly valuable coverage to more and more producers in all regions.

The total liability insured by crop insurance grew from $31 billion 10 years ago to $46 billion in 2004 (a 50% increase) to $90 billion in 2008 (a tripling over 10 years, doubling over 5), settling at $80 billion in 2009 as crop prices retreated significantly from the year before.

For rural communities across the nation, crop insurance has been a source of good jobs. The industry is made up of 15 companies that employ economists, actuaries, data managers, computer programmers, product developers, sales managers and on and on totaling thousands of jobs just internally. They also contract with thousands of men and women in communities across the nation who sell and service the policies to producers like my husband Tom and me, and employ a host of adjusters who must be ready to assess losses in a timely way when Mother Nature destroys our crop.

So what has happened?

On Friday, December 4th, the Administration put out a draft SRA (the contract with companies) that would cut funding for delivery of insurance to farmers by roughly 1/3rd. It further threatens the private delivery system by proposing equally deep cuts to the underwriting gains a company can make in good years.

In total, according to briefings that were conducted on Capitol Hill, the change would cut at least $4 billion out of crop insurance (and out of “fly-over space” economies) over the next 5 years. Based on private analysis and expected crop prices, this number could actually be much higher.

In a sentence, this level of cuts could threaten the very future of crop insurance, put in doubt the availability of insurance to farmers like me, and result in thousands of lost jobs in rural communities where we live and work.

This is not the time or place for such deep and destabilizing cuts. Many sections of last year’s 2008 farm bill, which took more than $6 billion out of crop insurance to pay for other priorities, have yet to take effect. Taking an additional nearly $1 Billion out of the delivery system each year even while the industry is adjusting to already scheduled cuts would be devastating. It will stymie investment in the industry, causing companies to hunker down at best and close their doors at worst, meaning less competition for our business.

Perhaps most troubling about this proposed raid on crop insurance is that the money will not stay in the rural communities, or with the farmers crop insurance was designed to serve. Therefore, it is not just an attack on crop insurance, but a raid on the agriculture budget baseline—that baseline that has sustained well more than its fair share of cuts over the last several years even as its overall spending levels have come down because of good policy (an anomaly as government policies go).

Cuts to crop insurance that pale by comparison were proposed in Congress last year as amendments to the Farm Bill (see FPF article on Brown Amendment) and earlier this year in the budget cycle. But, they were rightly and resoundingly rejected by the Congress on a bipartisan basis.

For the sake of farm families like mine, lenders whose financing allows us to plant and harvest a crop each year, the thousands of employees and billions of dollars in economic activity generated by crop insurance, and the agriculture budget, generally, this administrative raid on crop insurance should also be turned back.

DeVonna Zeug of Walnut Grove, Minnesota is the President of the Minnesota Corn Growers Association