Issue Summary: Crop Insurance

April 4, 2012

U.S. agriculture is a driving force in our national economy, helping to lift the U.S. out of two economic recessions in the past 12 years, working to reduce our country’s trade deficit, and making our nation and world more secure by ensuring that food is safe, abundant, and affordable.  And cost-effective U.S. farm policy that accounts for a small fraction of 1% of the total federal budget helps make it all possible.

A central component to that U.S. farm policy is Federal Crop Insurance.  Without Federal involvement, companies could not offer and farmers could not buy affordable insurance.  But with Federal involvement, private companies and independent insurance agents last year alone provided $114 billion in liability coverage, paying a record of more than $10.4 billion in indemnities, and all at a cost to the U.S. treasury of $6.7 billion.  In short, farmers received indemnities on losses quickly, and taxpayer exposure was effectively limited.

Policy Overview:

There are 15 private sector insurance companies and more than 12,000 independent agents that currently sell and service federal crop insurance policies.  These companies and agents, who are overseen and regulated by the Federal Crop Insurance Board of Directors and the Risk Management Agency of the U.S. Department of Agriculture, ensure that insurance coverage is available to any grower who wants to buy coverage.

Altogether, these companies and independent agents sold and serviced more than 1.1 million policies in 2011, covering 263 million acres, or approximately 80 percent of insurable farmland.  The percentage of our nation’s farmland covered by crop insurance has increased from only about 30 percent of eligible land in the early 1990s.

Nationally, there are nearly 5,000 private loss adjusters who work directly with farmers to service each claim, which is quickly followed by policyholders receiving their indemnities in much the same way you and I can expect to receive an indemnity on our home or auto insurance. While indemnities are almost always paid within 30 days of the paperwork being finalized, they are often paid even faster due to private sector competition that gives producers a choice among companies and agents.

Despite this success, federal funding for crop insurance has been drastically cut in recent years, sustaining more than $12 billion in funding reductions in the past 5 years.  Lawmakers, farm groups, producers, companies and agents have all expressed deep concern that additional reductions could seriously impact producer access to crop insurance coverage and threaten private sector delivery.

Policy Strengths:

Crop insurance ensures that producers share in risk management decisions and costs: Because producers pay a premium and purchase the specific type of policy coverage to best address the perils they face on their farms, crop insurance provides a tailored approach to risk management.

Crop insurance is important for securing loans: Banks are careful in making loans to farmers, especially small and beginning farmers, because the risks of farming are inherently high and the loans are big, usually more than most of us would borrow in a life-time.  But banks are particularly reluctant to make a loan to a farmer who does not have insurance in much the same way that a bank would be reluctant to make a mortgage or auto loan to a buyer without insurance.  In short, banks regard a crop insurance policy as necessary collateral in making a loan to a farmer.

Successful Crop Insurance Hinges on Private-Sector Delivery: Crop insurance languished for 42 years when delivered by an inefficient federal government system.  Efficient private sector delivery, private sector policy innovation, and positive public policy worked to make crop insurance the central element to U.S. farm policy that it is today.

Proponents of Crop Insurance:

Crop insurance enjoys strong, bipartisan support in Congress and strong support among farm groups, farmers, and lenders.  Crop insurance is also cost-effective and WTO-compliant.

What They’re Saying:

“As Congress continues work on the next farm bill, our organizations agree that an affordable crop insurance program is our No. 1 priority.”

–        A joint statement issued by the National Corn Growers Association, National Association of Wheat Growers, American Soybean Association and National Sorghum Producers, on March 1, 2012.

“Failure to anticipate an imminent downturn in the agricultural economy by not maintaining farm policies through the farm bill and crop insurance… would, in time, prove penny wise and pound foolish.”

–      A letter to the House Budget Committee from nearly 30 farm groups, March 15, 2011.

“Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.”

–        USDA Chief Economist Joseph Glauber, June 13, 2011.

Crop insurance—which is the most important component of the farm safety net for specialty crop producers and growers of most major crops—was specifically created to ensure that private insurance companies, not taxpayers, shoulder the burden of funding payouts following crises.”

–     Roger Johnson, former agriculture commissioner from North Dakota and currently serves as president of the National Farmers Union, in an op-ed that appeared in the Omaha World Herald on May 31, 2011.

“Now I understand that when Congress starts trimming the budget, everyone is going to argue that their specific program deserves protection. While I can’t speak for other aspects of federal spending, I can attest to the fact that crop insurance and other aspects of farm policy work for me. Without a doubt, they are the policies that keep family farms like mine in business and our nation’s food secure.”

–     Greg Schwarz, president of the Minnesota Corn Growers Association, in an op-ed that appeared in the Minneapolis Star Tribune, on June 13, 2011.

Because of the many challenges, all young farmers depend on components contained in the 2008 Farm Bill—most notably crop insurance—to provide lenders with the confidence and collateral they need to extend loans. Politicians continue to put these components to the test, even though without crop insurance, farmers throughout the South, Midwest, and various other parts of the country, would have been left with no crop—and no starting point on which to rebuild—due to the range of floods, droughts, tornadoes and frosts, this year alone.”

–     Matt Huie, a 35-year-old farmer who raises cotton, corn, sorghum, and livestock, in an op-ed that appeared in the Dallas Morning News on August 17, 2011.

Without crop insurance, I’m not sure that my operation would still exist—and the same goes for many of my neighbors—not just in Kansas but in the Texas panhandle where they haven’t seen a drop of rain since October 17, and Missouri, where flooding has left thousands of acres under water and unproductive.”

–     John C. Thaemert, Vice President & Trust Officer at Citizens State Bank & Trust Co. in Ellsworth, Kansas and past president of the National Association of Wheat Growers, in an op-ed that appeared in Agri-Pulse on September 6, 2011.

But perhaps most importantly for those of us who farm, the crop insurance program has the efficiency and speed of the private sector when it comes to getting payments into the hands of those who have suffered economic loss. The crop insurance policy recognizes that farmers are often over-extended after planting and will be very short of cash in hand if a crisis hits until the harvest season comes.”

–        Dee Vaughan, the current president of the Southwest Council of Agribusiness and the former president of the National Corn Growers Association, in an op-ed that appeared in the Lubbock Avalanche-Journal on September 11, 2011.

“The speed of delivery of crop insurance because it’s administered by private-sector companies makes it a different kind of animal. In fact, if a natural disaster strikes and I’m covered by a crop insurance policy, typically the payment comes to me in one or two weeks, not in one or two years. Because of that speed of delivery, I can quickly recover from the loss and replant the field, garnering myself some needed income for the year and putting some food on the tables for consumers.”

–      Quentin Bowen, who raises corn and soybeans in an op-ed that appeared in the Lincoln Star-Journal on October 31, 2011.

Now is not the time to weaken crop insurance and put taxpayers – instead of private insurance companies – on the hook for picking up the pieces. If anything, discussions should be centered on ways to strengthen crop insurance and the rest of the safety net. After all, there’s far more at stake than farmers in the next farm bill.

–     Neil Widner, chairman of the American Crystal Sugar Co. and a sugarbeet, wheat and soybean farmer in an op-ed that appeared in the Fargo Forum on November 30, 2011.

Crop insurance is the quintessential tool for managing farm risks because it allows each farmer to pay for the plan that makes the most sense for him or her.   Just like car insurance, health insurance or homeowner’s insurance, crop insurance allows the individual to assess his tolerance for risk and loss, and purchase plans to meet those needs.”

–      Jay Armstrong, who farms corn, soybeans, and wheat in an op-ed that appeared in the Garden City Telegram on December 24, 2011.

“Farmers like me need to have access to affordable risk management tools to better mitigate the impact of significant crop losses and sharp price declines. This is why the upcoming farm bill is so important. It is not about providing income to the less than two percent of the American population. It is about insuring that the same two percent can continue to provide affordable food for the other 98% of Americans who rely on them.”

–     Testimony of Clark Gerstacker, a Michigan farmer, before the U.S. Senate Agriculture Committee, on April 9, 2011.

Useful Links:

National Crop Insurance Services

Crop Insurance Professionals Association