Farm Policy Makes Good Economic Sense

June 26, 2015

Despite what farm policy critics would have you believe, farm policy is anything but a handout for farmers. In fact, newly released data from the National Crop Insurance Services (NCIS) demonstrates that farmers are taking care of their own and in the process reducing the cost to the federal government.

Consider the numbers: in 2014, farmers spent close to $4 billion to purchase crop insurance. Farmers then shouldered nearly $10 billion in losses as part of deductibles to their insurance plans before they received assistance. Taken together, this $14 billion in out-of-pocket costs and losses dwarfs the $9 billion in insurance indemnity payouts last year.

As the president of NCIS, Tom Zacharias, put it in a recent press release: “U.S. farmers are actively participating in the funding of their own safety net and minimizing taxpayer risk exposure.”

Indeed, that’s the point of farm policy – to help farmers make it to another year when disaster strikes without breaking the bank for either farmers or taxpayers. With crop insurance, everyone knows the score and can plan accordingly. While most farmers purchase crop insurance annually, only a portion of them collect indemnities for losses in an average year.

“I’ve known some folks who’ve farmed for more than three decades and have collected a crop insurance payment once or twice. It’s a safety net they hardly have to use, but they wouldn’t think of farming without it,” explained Wade Cowan, a Texas farmer and the president of the American Soybean Association.

Brett Blankenship, a wheat farmer from Washington and president of the National Association of Wheat Growers, added, “I’ve paid significant premiums through the years and someone else received them. I’m happy to do it because they’ll do the same for me when I need it.”

This large, diverse pool of producers contributing to the farm safety net is what makes crop insurance a strong risk management tool.

For the past five years, we have watched dramatically devastating weather events grip our nation. In 2012, a drought of epic proportions hit a majority of the country and with it endangered vast areas of production agriculture. For some, this was the second consecutive year of drought conditions. In other regions the concern was record-breaking floods and rare, unseasonal blizzards.

Yet, despite this historical drought and other natural disasters, less than half of the crop insurance policies were indemnified in 2012. Meanwhile, farmers shouldered $17 billion in deductible losses and premium payments and received $17 billion in indemnities. Further, there was not a single call for unbudgeted ad hoc disaster assistance in Congress.

Crop insurance worked as intended. Taxpayers weren’t on the hook for 100 percent of the tab, farmers who purchased crop insurance were able to recover from their losses, and everyone enjoyed the benefits of an affordable and stable food supply.

When you understand this dynamic, you understand the need for an effective safety net like crop insurance. When you understand that these catastrophic events can happen all across the country impacting different types of farmers at any given time, you understand the reason crop insurance must remain affordable and widely available.

In short, farm policy makes good economic sense to everyone but the well-fed critics.