Future of Crop Insurance Looks Bleak

The future of crop insurance is getting bleaker by the day.

The Obama Administration on Monday said that in addition to cutting direct payments and reducing conservation programs, they plan to reduce payments to the crop insurance industry by $5.7 billion over 10 years and raise premiums paid by farmers.

Meanwhile, the witnesses at the 2012 Farm Bill hearings held recently in Wichita spoke in a strong, unified voice: Keep crop insurance subsidies. Many of them invoked the name of future farmers and the need to support the next generation in farming. 

Unfortunately, keeping crop insurance viable for future farmers is getting more and more difficult. The biggest threat to the program, though, may not be budget cuts, but rather the actual design of the program.

As it exists now, risky cropping practices with high rates of failure are allowed by the USDA’s Risk Management Agency. In the High Plains, high risk practices include continuous cropping of row crops like corn and milo on dryland acres. The risk of the second crop is substantially higher than the first crop with yields falling more than 30%, but can still be insured at the same rate as the first crop despite the higher risk. Continuous cropping of wheat immediately after the fall harvest of a row crop, also called five-minute fallow, is also deemed high risk.

According to Rebecca Davis, director of the RMA regional office in Topeka, these high risk practices raise premiums on other farmers.

Here in the semi-arid region of western Kansas, we are already seeing the effects of higher insurance cost with some farmers either reducing their coverage or considering self-insuring. Others have dropped the program all together on more philosophical grounds. As one farmer in Scott County, Kan., puts it, he refuses to support a system that incentivizes bad farming practices while penalizing responsible farmers via higher premiums to cover others’ risky behavior.

Rising crop insurance premiums are a particularly sensitive issue for young farmers or small farmers with limited capital. For producers who are less able to spread their cost of production, the rising cost of insurance only adds to the sting of higher seed, fuel, fertilizer, machinery, and land prices. 

This all culminates into a huge spiral of impossibility. As farmers exit the program, premiums have to rise further to cover losses, causing still more to head for the door.

This hurts anyone who uses crop insurance. As one witness at the hearings in Wichita said of the rising cost of insurance, “Obtaining crop insurance may become financially prohibitive to producers, removing what may be the most significant component of the future farm safety net.”

If we are to keep crop insurance for future farmers and maintain an integral part of our safety net, the farm lobby needs to get this message across to lawmakers and the RMA: Fix crop insurance and disallow the insuring of high-risk farming practices. Not taking the hard, necessary steps now will hurt everyone in farming in the future.