Consumers also crop insurance beneficiaries -- specialist
Crop insurance is the only meaningful risk management option available to farmers today, says IFB's Doug Yoder.
Published: Aug 7, 2012
As the House prepares to return to the “2012” farm bill, farm state lawmakers must defend a crop insurance system expected to incur huge payouts this season.
With direct payments out of the picture under both U.S. Senate and House farm bill proposals, such groups as the Environmental Working Group (EWG) have keyed in on crop insurance as a new target for ag budget cuts.
Anticipation of heavy 2012 claims (Country Financial had received more than 1,800 production loss claims as of last week) has drawn media attention to federal premium subsidies and the purported cost of insurance to the taxpayer.
EWG estimates the total federal cost of the insurance program in Illinois at more than $1 billion between 1995 and 2011. Iowa State University ag economist Bruce Babcock suggests drought-related claims nationwide could run more than $10 billion, noting that “when we (non-farm consumers) buy insurance, we have to pay the full premium."
However, American Farm Bureau Federation international and ag policy specialist Dale Moore argues consumers, as well as farmers, are long-term insurance beneficiaries. While the drought is expected to spur consumer food prices in 2013, he argued farm survival via insurance protection will help avert even larger food cost increases or perhaps even future supply shortfalls.
“I won’t argue that there aren’t some policies folks might be able to take (undue) advantage of,” Moore told FarmWeek. “But when you get down to crop insurance itself, most producers look at what risk they need to protect to ensure they’re able to operate again next year.
“Yes, some farmers are going to get wiped out (have a total crop loss), and they are going to get a crop insurance payment. Good lord willing, that payment will enable them to keep their bankers happy and have enough left over ... so they can start again next year.”
Crop insurance is “the only meaningful risk management option available to farmers today,” especially with the lack of a current federal standing disaster program, Illinois Farm Bureau risk management specialist Doug Yoder said.
Yoder noted 80-85 percent of U.S. farmland is insured, “meaning those farmers should have the financial wherewithal to plant a crop again next spring and continue to grow our food.”
In the absence of insurance, any congressional disaster programs likely would be “100 percent taxpayer-funded,” Yoder maintained.
Insurance costs are high because of inherent weather, global market, policy, and other risks. Yoder said federal subsidies are “a discount to the total crop insurance premium,” and notes the farmer share of the premium “is not cheap.”
Based on average per-acre corn and soybean premiums, out-of-pocket expenses can run nearly $25,000 per year for an Illinois farmer with about 1,000 acres. In 2011, Illinois farmers spent $409 million out of pocket on premiums.
And although farmers invest heavily in crop insurance, Yoder stressed “they often don’t see a return.” Over the last six years, Illinois corn and soybean farmers have received an average 38 cents for every $1 spent on insurance premiums.
“It’s like car insurance or homeowner’s insurance,” Moore said. “Each year, the farmer pays a premium. If he has a good year, he doesn’t get that premium back.
“And before he gets his first check, a farmer has to have a loss. Let’s say he buys a 75 percent policy. He has to lose 25 percent before the policy kicks in. On top of that 25 percent, he also has the premium he paid.”
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