In Defense of Crop Insurance

August 20, 2012

As one of history’s longest, most widespread droughts continues to suffocate crops and livestock nationwide, the importance of crop insurance is becoming increasingly obvious to those in agriculture.

Yet, despite what the vast majority of the farmers and ranchers who are being affected by the drought and counting on the reliability and efficiency of crop insurance have said, third party opponents continue to pen editorials attacking the policy from faraway newsrooms in New York and DC.

Jason Williamson, a crop insurance agent from Payne, Ohio, stood up to a recent New York Times editorial titled, “Drought and the Farm Bills,” which implied that farmers are purchasing crop insurance policies as a way to turn a profit—an assertion that anyone with any experience in the high-cost, high-risk farming business has immediately dismissed as ridiculous.

“Farmers purchase policies and can receive claims only for documented losses,” Williamson explained. “Crop losses may be deep, and no crop insurance indemnity will be enough to make any of these farmers whole again. The indemnity will allow those who purchased policies to get back on their feet and farm yet another day.

“Do you think that drivers who purchase car insurance are secretly hoping for a car wreck to get a check from the insurance company? It’s an absurd idea. You purchase insurance for protection, not to make a buck.”

That same day, Tom Zacharias, president of the National Crop Insurance Services (NCIS) found himself having to defend the merits of crop insurance to the Washington Times, the author of which suggests that American taxpayers should be outraged by crop insurance.

But it’s “quite the contrary,” Zacharias explained.

“American taxpayers should be relieved…Prior to the investments made in the modern crop-insurance program, taxpayers would have been on the hook for most, if not all, the crop losses resulting from the 2012 drought…response and reaction to agriculture disasters came in the form of 42 supplemental ad-hoc disaster bills,” he continued. “[These] measures…have cost taxpayers $70 billion since 1989 and took up to 18 months to reach growers.”

Today’s crop insurance program covered 84 percent of eligible acres in 2011. When farmers were hit with a string of natural disasters, there wasn’t a single call to Congress for expensive disaster aid.

Indeed, most farmers are crediting crop insurance with the fact that they are able to plant again this year—and it looks as though the $4 billion paid in premiums will prove worth it in 2012 as well.

“Crop-insurance premium subsidies are not direct cash transfers to farmers,” Zacharias wrote. “Farmers pay a reduced amount for their premiums and receive an indemnity payment only in the event of an insurable loss. They do not receive ‘subsidy’ payments from crop insurance… Under this system, the federal government serves as a reinsurer, an insurance company for insurance companies. As such, it shares in the gains and the losses of the policy. Those gains have returned about $3.5 billion to federal coffers in the last decade, which can and will be used to offset losses in years like this one.”

And it’s a good thing, too. With farmers plowing up dirt in most of the Corn Belt, there’s no guarantee there would be a next year in U.S. agriculture if it weren’t for crop insurance.