Advocates Push for and Against Crop Insurance

September 28, 2011

As the federal budget battle continues, President Obama outlined on Sept. 19, 2011, a package of ideas designed to cut costs and increase income over the next decade. One element of the $3 trillion package is an $8.5 billion reduction in costs for crop insurance.

If Congress were to approve such changes — either via the "Supercommittee" (formally known as the Joint Select Committee on Deficit Reduction) that has been charged by Congress with forging a compromise on deficit reduction and submitting its final report by Dec. 2, 2011, or in the 2012 Farm Bill, or through some other means — that $850 million cut each year would put a modest dent in the federal crop insurance program that has cost taxpayers anywhere from $2.7 to 7.0 billion annually from 2002 to 2010.

Taxpayers have paid 48% of total costs during that time. Along with helping to reimburse claims by farmers, taxpayers are covering sizable administrative and operational expenses for the authorized insurance companies that are profiting from this program.

Crop insurance is one of many federal programs designed to offer a safety net to farmers who are vulnerable to the vagaries of weather and economic forces in the marketplace. Crop insurance covers about 100 crops, but is highly concentrated in just a few, with corn, soy, wheat, and cotton accounting for 82% of farmer premiums over 1995-2010, according to the Environmental Working Group (EWG). Those 4 crops also accounted for 78% of all premium subsidies paid by taxpayers.

States in which farmers received the most subsidies during 1995-2010, in decreasing order, were TX, ND, IA, MN, IL, KS, NE, SD, CA, IN, MO, FL, OH, WI, GA, NC, MT, CO, AR, and MI.

A map at the end of the following URL provides a quick way to see the states and counties where crop insurance is an issue.

There are many other ways to search EWG data, by year, crop, or state, in the above categories, as well as the categories of reimbursements for administrative and operating expenses, total costs, and indemnities.

Crop insurance has recently and rapidly become by far the largest element in the federal agricultural safety net, according to Taxpayers for Common Sense. The organization says the setup of the current program results in privatization of profits and socialization of costs, and that sharply reducing or eliminating the government role in this program would help the environment by taking away an incentive for farmers to plant marginally productive or easily eroded land they might normally avoid if they assumed the risk for crops planted there. These unplanted lands could then provide wildlife habitat, flood or wetlands buffers, or less-contaminated aquifer recharge areas. TCS says the absence of federal subsidies would also encourage farmers to fall back on proven risk management strategies that are good for both agriculture and the environment, such as crop diversification, rotation of crops, staggered timing of planting, and planting on appropriate soils and slopes.

Instead of slashing or eliminating the crop insurance program, as TCS suggests, the Obama administration is recommending moderate changes to some of the technical aspects of the program. For instance, they would reduce the rate of return on investment by insurance companies from about 14% to 12%, lower federal payments for administrative costs by changing the year such payments are based on (from 2010 to 2006), and slightly increase the percentage of premiums farmers pay.

These changes build on 2008 and 2010 revisions to the crop insurance program. For one perspective on how the previous changes in crop insurance have occurred, and their impacts, see:

The American Association of Crop Insurers says the 2008 and 2010 changes have been drastic, and should be monitored for many years to see what impacts they have before any other alterations occur, according to the organization's manager, David Graves (cell 202-255-4644). He says the Obama proposals are "a total divorce from reality," and shouldn't be adopted. He also says crop insurance can't be privatized like many other forms of insurance, since damage to crops occurs in a widespread area, unlike specific problems addressed by insurance for houses, cars, or health.

But Graves acknowledges that some of the crop insurance companies operate nationally. Since those companies would have geographically diverse income and payouts, compensating for bad times in some areas and low claims in others, it would be worthwhile to ask the companies if it's possible to develop fee structures that would allow a company to function well.

Roger Johnson, president of the National Farmers Union, whose members generally have smaller farms, also says subsidized crop insurance is essential, and that the Obama cuts are much too deep. In fact, he wants to expand the program, by adding coverage for more crops. However, his organization is suggesting extensive modifications in the current program, in part to reduce the advantage he says large-scale farmers enjoy.

Johnson says if farmers are forced to pay more for insurance, many will choose to go out of business, rather than adjust as Taxpayers for Common Sense recommends. That could easily result in further consolidation in the agriculture industry as large companies buy them out, he says.

However, hard numbers are needed to confirm whether Johnson's speculation has merit. A key part of your reporting could be to get those numbers from farmers, insurance companies, and/or USDA so you can evaluate how insurance payments stack up against gross profits and operating expenses.

The National Sustainable Agriculture Coalition supports the National Farmers Union's preference for revising the crop insurance program so large-scale farmers don't have as many advantages. They say appropriate changes could also encourage crop diversity, helping to reduce the risks posed by monocultures.

In Congress, early critics of the Obama proposal for crop insurance include Rep. Frank Lucas (R-OK, a self-described tireless defender of the rights of private property owners and promoter of agricultural issues in his district, which he says is one of the largest agricultural regions in the country; Sen. Pat Roberts (R-KS, who says Obama's proposed cuts would put "the entire program at risk"; and Sen. Kent Conrad (D-ND, an avowed "deficit hawk" in the state that is the second largest recipient of crop insurance payments, and co-author of the 2002 and 2008 Farm Bills. Check with members of Congress who represent your audience to get their take on the president's proposal, and ideas by others for possibly changing crop insurance practices.

Congressional work on the 2012 Farm Bill will begin to intensify this fall. Scores of advocacy groups will be issuing their opinions. One government resource early in the process may be:

Other resources for covering crop insurance issues include: