Federal Crop Insurance: Can It Keep Up With Climate Change?

May 9, 2007

According to a recent GAO report, the nation's federally subsidized crop insurance program might not be ready to manage increasing risks to US crops due to climate change. Also, private crop insurance might become more costly or difficult to get. How might this affect farming and farmers in your county, state, or region?

What's the problem? According to GAO, "Many large private insurers are incorporating climate change into their annual risk management practices, and some are addressing it strategically by assessing its potential long-term industry-wide impacts. The two major federal insurance programs [crop and flood insurance], however, have done little to develop comparable information."

How can you cast this as a state or local story? The independent news blog Colorado Confidential offers a good example.

Right now, federal crop insurance is coming under increased scrutiny- and a revamp is possible, even likely.

For many farmers, federal crop insurance isn't working well enough. According to a May 1, 2007, Brownfield Network article, "Problems covering [farmers] with multi-year losses and coverage gaps left by big deductibles mean crop insurance hasn't become a substitute for federal ag disaster aid."

Abuse is another fast-growing concern. On May 4, the Washington Post reported, "Private companies are taking advantage of a poorly designed crop insurance program for farmers to reap 'excessive' profits while taxpayers absorb most of the costs and risks, investigators told a House committee."

On May 3, 2007, GAO released a related report: "Crop Insurance: Continuing Efforts Are Needed to Improve Program Integrity and Ensure Program Costs Are Reasonable." Lisa Shames, 202-512-3841; report abstract.

AP reports that USDA is currently working on a "study of federal crop insurance programs that lawmakers will use in writing a multiyear farm bill this year."

Energy crops are a growing part of the US farm economy, and this is driving commodity prices (especially for corn) upward. Plus, supporters of new energy crops (such as camelina, used for biodiesel production) are pushing for their addition to federal insurance coverage. Here's an example of a local story that tackles these angles.

HOW CROP INSURANCE WORKS: Farming has always been a risky business, financially speaking. Since the Dust Bowl, the US Dept. of Agriculture has been offering federal crop insurance to protect farmers against financial losses from droughts, floods, or other natural disasters. The current program is administered jointly by the USDA Risk Management Agency (RMA) and private insurance companies. RMA subsidizes policy premiums.

According to GAO, "USDA determines whether the federal crop insurance program will insure a commodity on a crop-by-crop and county-by-county basis, based on farmer demand for coverage and the level of risk associated with the crop in the region, among other factors. Over 100 crops are covered."

USDA charges farmers only about a third of what it costs to pay the premiums. It also covers most policy costs for farms facing the worst weather risk.

Federal crop insurance is big money. In a May 1, 2007, Congressional update on crop insurance, RMA Administrator Eldon Gould noted, "In 2005, crop insurance provided approximately $2.4 billion in indemnity payments to farmers and ranchers. For 2006, indemnity payments totaled approximately $3.4 billion." That testimony, by the way, nowhere mentions climate change.

What's been happening with federal crop insurance in your area? Crunching the numbers is a good place to start. For a broad overview, start with RMA's state fact sheets. You can also download detailed data for specific states, counties, and crops. You can get even more detailed reports (and eye-catching maps) by county. And be sure to check out whether any local county programs have been removed lately.

Armed with that context, start talking to your state department of agriculture and county agriculture extension service.

The American Farm Bureau is advocating on behalf of US farmers on crop insurance and other issues, and may be able to clue you in about trends and sources in your region. Farm Bureau Press: Tracy Taylor Grondine, 202-406-3642; or Cyndie Sirekis, 202-406-3649.

Get up-to-speed with climate predictions for your region. How is the climate likely to change - more drought? More floods? More wildfires? More severe storms? More hail? Then ask the farmers and agriculture officials: which crops in your region are most vulnerable to these risks, and why? One solid starting point is the "National Assessment" of climate impacts.

Then do some real field work. Go out and talk to those farmers - especially ones who've filed federal crop insurance claims in recent years, or collected disaster assistance money. How are they dealing with the red tape? Are climate and insurance changes affecting what they will plant in the future, and whether they will stay in the business?

Also, for any ag-related story in your region, ask about the crop insurance angle. Get the local statistics and trends. Increasingly in all sectors of life and business, the insurance industry is playing a leading role in deciding what will happen, when, and where. Crop insurance patterns can be an early indicator of long-term ag trends for your region.


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