2011 Indemnity Payments Already Surpass Historic Record, Still Climbing

January 26, 2012

With claims still streaming in — only an estimated 81 percent of expected claims have been finalized — crop insurance companies have already paid out a record $9.1 billion in indemnity payments to America’s farmers in 2011. This has already surpassed the former record of $8.67 billion in indemnities paid in 2008, according to USDA’s Risk Management Agency (RMA).

“Working as designed since 2008, more than $27 billion in private-backed crop insurance payouts over the past four years have helped farmers pick up the pieces after natural disasters or market drops,” said Keith Collins, former USDA Chief Economist. “Without crop insurance in place, those billions in damages would have fallen onto the laps of lenders, input suppliers, marketers, land owners and farm families, just as the economy was spiraling downward and unemployment was soaring,” he said.

Collins noted that despite the fact that the two largest indemnity payments in the history of crop insurance have taken place in the last four years, Congress has reduced the federal investment in the crop insurance by more than $12 billion during the same time frame. “We’re doing more with fewer resources while our exposure continues to rise as crop values stand at historically high levels,” Collins said.

Collins pointed out that while these cuts have been taking place, many farmers are planting corner to corner, hoping to meet the needs of growing domestic and world demand for food, feed and fuel, which has caused a continued spike in commodity prices and land values. Increased planting will likely yield an increased demand for crop insurance.

“Crop insurance has never been more important, and today it is leaner and more efficient than ever,” he said. “But any erosion to the crop insurance infrastructure in the next Farm Bill could be a big problem for producers and the industry, especially with crop prices – hence the value of the insured product – remaining elevated and creating a high exposure to risk,” he added.

Dee Vaughan, a farmer who raises corn, cotton, sorghum, soybeans, and wheat in the Texas Panhandle, underscored the importance of crop insurance to farmers in Texas in a September 11, 2011 op-ed in the Lubbock Avalanche and argued that further cuts to crop insurance could hamper the ability of the policy to carry farmers through another large disaster. “While it’s important for agriculture to shoulder its fair part of the pain, we need to recognize that it’s not only in the farmer’s best interest, but in the best interest of consumers and the nation as a whole that farm policies remain adequately funded, and viable,” he said.

And crop insurance is a public-private partnership that serves as the bedrock to the modern-day farm policy, according to Vaughan. Texas farmers, like Vaughan, were fortunate this system was in place in 2011. USDA data reveal that more than one out of every four dollars of those payments went to farmers and ranchers in Texas, who have received $2.4 billion in indemnities to date. For every dollar Texas farmers paid into crop insurance for their 2011 crops, approximately $2.23 was paid out.

The next hardest hit state was North Dakota, with $1.5 billion in damages. The other states to fill out the top five were Kansas, South Dakota and Minnesota. Together, these five states account for 63 percent of the damages paid nationally.

Just three of the more than 128 crops covered by crop insurance in 2011 accounted for 70 percent of the indemnities paid so far: Corn, cotton and wheat. Soybeans and grain sorghum fill out the top damaged crops, with the top five accounting for roughly 86 percent of total damages paid.

But because of these payments, farmers are hard at work again in 2012. Informa, a company widely-known for crop forecasting, projects a dramatic increase by nearly two million acres to the nation’s 2012 corn crop, from 92.3 million acres planted in 2011 to 94 million acres in 2012.

And if past statistics hold true, at least 80 percent of eligible acres will be protected by private-company backed crop insurance policies, shielding production agriculture and food consumers from extreme risks when Mother Nature strikes again.