University Researchers: Limiting Crop Insurance Cuts Deep

Crop insurance has been hailed by lawmakers and farmers alike as an essential risk management tool during recent House and Senate Agriculture Committee hearings. Despite the praise, there are still critics who hope to weaken farmers’ protection against natural disaster and wild swings in the market.

Farm policy opponents are specifically aiming to cap the discounts farmers receive on insurance premiums, eliminate a key revenue insurance product pegged to commodity prices, and exclude some growers from the system altogether based on their income.

Such proposals are meant to target America’s biggest farms, but recent work out of the University of Illinois and Kansas State University shows that the effects would be far wider, hitting many family farms, too.

To get a better idea of the impact of a proposal to limit premium discounts, Dr. Gary Schnitkey of the University of Illinois looked at the heart of corn belt in McLean County, Illinois. The area has prime growing conditions with deep and fertile soils.

There, he found, farmers with insurance coverage on 85 percent of their crops, the highest amount offered, would hit the proposed $40,000 premium discount limit after 2,944 acres – a large farm, but by no means a giant operation.

Meanwhile Illinois counties where land isn’t as fertile, like Saline County, would hit the cap at the same coverage level on just 884 acres – a mid-sized farm similar to most family farming operations. This cap would be hit even sooner by growers considered riskier because of past losses or bad yields.

It’s not just Illinois either. Drs. Art Barnaby and Mykel Taylor from Kansas State found similar results in other Midwest states. For example, nearly 15 percent of Kansas farms would hit the cap, they noted.

The pain grows exponentially, Barnaby and Taylor explained, if farm policy critics are successful in eliminating harvest price tools available for revenue coverage. These tools enable a grower to insure a crop at its harvest price rather than its price at the time planting in order to take advantage of forward contracting opportunities.

Eliminating it, the researchers found, would “reduce crop insurance protection for nearly 95% of Iowa’s crop farmers…[and] about 80% to 90% of the crop acres in many other states, including Kansas.”

Another anti-agriculture proposal to exclude farmers with incomes over $250,000 from crop insurance benefits would also hit ag country, and it may not just hit large farms.

“Such a policy would likely impact farms that had high levels of off-farm income from a spouse and or other business activities,” according to Barnaby and Taylor. Furthermore, because most farmers’ incomes are tied to crop prices, some growers could be ineligible in some years and eligible in others, creating a compliance nightmare for the USDA and farmers alike.