Southwest Minnesota crop farmer Darwyn Bach and I recently had a conversation about finances that frankly left me stunned. Before he puts one seed into the ground this spring, crop insurance guarantees him some $1,000 per acre in revenue come harvest this fall. In 1997 he was guaranteed $166 per acre; in 2011 it was just over $900. Surprisingly, this upward trajectory has put Bach ill at ease about how this will ultimately affect his community.
“The pendulum has swung way too far,” he told me.
And that pendulum threatens to swing even further. Crop insurance, a taxpayer-funded program that started out in 1938 as a way for farmers to ride out the droughts, floods, pest infestations and other curve balls nature tosses their way, has quietly transformed into one of the biggest drivers of how cropping is carried out in this country. And in many ways that’s bad news. Today’s crop insurance rewards farming of environmentally sensitive land and is a key mechanism for consolidating an increasing number of acres in the hands of a few mega-producers.
And as the Senate and House begin drafting the next Farm Bill, it’s become clear that commodity groups, agribusiness firms and insurance companies want crop insurance to become an even bigger player in American agriculture. In coming weeks, expect to hear a lot more about the need for taxpayers to support crop insurance. But as the feel-good “safety net” rhetoric becomes louder, beware: This program is a far cry from what its creators had in mind. Farming is inherently risky, given the vagaries of weather and markets, and that’s part of the reason programs like crop insurance were created. But there’s a difference between cushioning the blow and fueling endeavors that have widespread negative consequences,
The crop insurance program is administered by the USDA’s Risk Management Agency as a quasi-private program, with insurance policies sold and serviced through some 15 insurance companies. For decades the program was relatively straightforward: If yields were severely cut or wiped out by bad weather, farmers who bought a policy received an indemnity.
The program underwent a dramatic shift in the 1990s. Following the devastating floods of 1993, Congress sought to increase crop insurance enrollment by significantly ratcheting up how much of the farmer’s premium cost the government would cover (premium subsidies were increased again in 2000). Today, the federal government takes on around 60 percent of the farmer’s cost of a premium, depending on the level of coverage, which is almost double what it was in 2000. Even more significantly, it was in the 1990s that “revenue insurance” options were added to the program. For the first time, crop producers were able to assure themselves a target level of income based on projected prices and historic yields.
Over the past dozen years, revenue insurance has shifted from an add-on to increase participation to the tail wagging the dog. In 2000 24 percent of crop insurance policies sold in Minnesota were revenue-based — in 2011 that number was 64 percent.
In an attempt to increase farmer participation even more, the government made another key change to crop insurance in the mid-1990s by no longer requiring farmers to undertake basic soil conservation practices in order to qualify for indemnities. Such requirements, called “conservation compliance,” are standard with other major farm programs, such as direct commodity payments.
Numerous national studies show that the way crop insurance is operated now encourages the farming of marginal land — acres too erosive, wet or otherwise fragile to raise a good crop on. By guaranteeing income no matter what those acres yield, there is no longer an economic brake on plowing up environmentally fragile land. That’s one reason an increasing number of people who own marginal land are turning away from retirement programs like the Conservation Reserve Program in favor of corn and soybeans.
This makes the unlinking of conservation compliance from crop insurance a particularly unfortunate move. By the way, surveys conducted over the past three decades show farmers consistently support the idea of controlling erosion in return for taxpayer support.
And all of this emphasis on revenue assurance means taxpayers are helping fund a program that gives large landowners the funds for bidding up farmland rental and purchase prices to unsustainable levels, which consolidates acres in fewer hands while putting beginning farmers at a severe disadvantage. The cost of running the program has more than doubled during the past decade. Congressional budget cutters have focused on reducing the amount of direct payments farmers receive through the USDA’s commodity subsidy program. In reality, crop insurance is second only to food and nutrition programs in terms of how much of the federal agriculture budget it gobbles up. Over the next decade, federal outlays on crop insurance are projected to outpace spending on traditional commodity programs by about one-third, according to the Congressional Research Service.
In a politically savvy move, the National Corn Growers Association, American Soybean Association and other commodity groups have told lawmakers they would be willing to give up direct payments as a budget-cutting move. That’s because they know they have crop insurance as their ace in the hole.
Should we dump crop insurance? No. It’s critical to have a safety net that’s true to its roots: as a tool for managing risk, not one that eliminates the incentive to farm in a way that's good for the land and the community. That means a crop insurance program that requires conservation compliance and better targets affordable policies to the farmers who need them. The program has gotten so far off track that even farmers who benefit from it are calling for reforms that would make it less erosive to the land and its people.
“Because of crop insurance, there really is less risk for me in grain farming,” says Bach. “But long term for our community, it’s definitely not good.”