Farm Credit System Leaders Say ‘Keep Crop Insurance Whole’

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In the midst of an economic downturn all across farm country, two leaders in the Farm Credit System (FCS) are speaking out about the importance of crop insurance for farmers during these times.

In an interview with Agri-Pulse, new CEO and President of the Farm Credit Council, Todd Van Hoose said, “crop insurance is absolutely essential and…is probably the backbone of the risk management strategy of most farmers in America today.”

While Scotty Elston, the Chief Credit Officer at AgTexas Farm Credit in Lubbock, Texas, recently wrote in a Southwest Farm Press editorial that crop insurance “can literally make the difference between farming another year or losing so much a farmer must call it quits.”

That’s because farming is a capital-intensive business and many farmers borrow in one year more than most Americans borrow in a lifetime. Crop insurance provides security for both the farmer and the lender.

“From a lending perspective, crop insurance provides a guarantee of a minimum income for a lender to rely on to repay loans should a farmer lose a crop,” stated Elston. “This insurance guarantee makes it much easier for producers to obtain the financing they need to farm.”

Considering that the FCS holds nearly 41 percent of the farm sector’s total debt and has the largest share of farm real estate loans, according to a Congressional Research Services report, the role of crop insurance helps enable sound lending practices and ensures farmers have a dependable source of credit. All of these factors are crucial as producers struggle with depressed commodity prices, high input costs, and falling farmland values.

“The important message we can talk about is, keep crop insurance whole,” said Van Hoose. “It is worth the investment of the federal government in helping farmers manage the risk.”

ICYMI: Trust the ag lender, crop insurance cuts would most harm family farms

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This is the time of year when farmers are meeting with their lenders to renew farm operating loans for 2016. The past few years have been challenging for producers as commodity prices have fallen, input costs have risen, and severe weather has damaged or destroyed entire crops.  With the downturn in the ag economy, multiple years of lost revenue and less than favorable forecasts for 2016, many producers are facing the tough question: can I afford to continue farming?

Without access to capital, the answer to this question is a resounding no.

I’ve worked in the ag finance business in Texas for more than 30 years and have seen highs and lows in the farm sector. Though those in agriculture have always faced risks, those risks have escalated over the past two decades. Volatility has become the norm rather than an infrequent event. In the last five years farmers have experienced a multi-year drought, hail storms in October, late spring freezes, and too much rain literally drowning their crops. Prices for farm commodities have dropped drastically to below the costs of production as foreign subsidies and market-manipulating policies have drastically risen.

As a way to mitigate these risks and make access to capital possible, Congress selected crop insurance as the primary risk management tool for farmers in the last farm bill. The modern crop insurance system in place today replaced ad hoc disaster relief programs ensuring farmers would have some protection against natural disasters. Congress designed crop insurance to be affordable to the farmer, yet accountable, requiring producers to pay premiums for the insurance coverage on their crops and shoulder a portion of losses through deductibles.

In the cotton industry, a major crop in the 43 counties served by AgTexas, crop insurance is basically the only risk management tool available to producers. It can literally make the difference between farming another year or losing so much a farmer must call it quits.

From the lending perspective, crop insurance provides a guarantee of a minimum income for a lender to rely on to repay loans should a farmer lose a crop. This insurance guarantee makes it much easier for producers to obtain the financing they need to farm. This is similar to the guarantee any car owner would have on their car loan if they got into an accident. Crop insurance is a safety net for some of the events that cannot be controlled.

For perspective, an average family farm in the panhandle of Texas farms between 1500 to 2500 acres and must borrow $500,000 to $1 million each year to produce a cotton crop. Because of the low price of cotton and the high input costs in 2015, many had farm losses exceeding $150,000.   On top of the loss, they still have loan payments, living expenses, and the same farming costs to keep operating another year.

As producers and ag lenders work together to prepare cash flows for 2016, it is extremely difficult to forecast enough income to cover operating loans, meet debt payments, and pay living costs. Especially vulnerable are the young and beginning farmers who face these challenges with limited financial resources. These young producers and multi-generation family farms are the most affected by the volatile prices, increased production costs, and weather uncertainty in their operations.

Some in our country wish to do away with farm programs and any support of a crop insurance system that supports farmers and ranchers who produce the food and fiber that not only feeds and clothes our nation, but also serves other nations around the world. The reality is, without a viable, affordable crop insurance program most of these producers’ businesses will not survive. And if farmers go under, the Main Street businesses they support are not far behind.

Scotty Elston is the Chief Credit Officer at AgTexas Farm Credit in Lubbock, TX. This op-ed appeared in the Southeast Farm Press on June 20, 2016.

ICYMI: Farm policy, crop insurance wise investments for all Americans

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Although I was born and raised on a farm, the standing rule in our house was I had to spend two years after college pursuing other things. This was not to discourage me from continuing the family farming tradition. Rather, my father wanted to make certain I knew what kind of life I was signing up for. Perhaps another job elsewhere would provide me with greater financial security and stability than one that was beholden to the weather, markets, foreign subsidies, and even lawmakers in Congress.

I recognized the wisdom in my father’s counsel, but after a couple of years, I knew I wanted to get back to the farm. By then I was married and the thought of raising my family in a small, rural town, combined with returning to the family farm, appealed to me. I have been farming on my own for the past nine years.

What I have learned during this time is this: farming is an enormous game of risk management. It’s not if something bad is going to happen, it’s when. I was aware of this reality growing up, but I fully appreciate it now that I am working to sustain my own farm and support my own family.

Droughts, floods, hailstorms, high input prices, unpredictable commodity prices, the uncertainty of what will come out of Washington whether it is talk of cutting the farm safety net during the life of a farm bill or applying a new regulation that increases the cost of doing business; in addition to competing with foreign governments that cheat on their commitments to free trade and fair markets. These are the challenges that farmers face every year. It is a life that is rife with risk and uncertainty.

Today’s depressed farm economy is a prime example. Commodity prices are half what they were a few years ago while the cost of doing business has not followed the same trend. The financial situation for many farming operations all across the country has deteriorated fast and many lenders are nervous about providing financing.

This is why we need strong farm policy and crop insurance to help us manage things beyond our control like a natural disaster or a collapse in commodity prices.

One of the least understood points about crop insurance is that it’s not just for farmers. That’s how we as farmers talk about it, that it’s a way to keep us in business when we suffer a catastrophic loss. That it’s a way to protect our yearly investment when things go wrong.

That is all true, of course, but we don’t explain that it is also insurance for every consumer.

Just look at the drought of 2012 – one of the worst droughts on record – that devastated most of the country. There were times in our nation’s history when that kind of devastation would have put thousands of farmers out of business, especially beginning farmers like me, because farm policy and crop insurance wasn’t what it is today. But, that didn’t happen in 2012. Those risk management tools gave us the ability to stay in business, to make it another year. It provided banks with assurance that operating loans would be repaid despite large losses, and in the process it enabled us to keep a stable and affordable food supply for all American consumers because we were able to begin again.

What affects the farmer will affect the consumer. The tools that help farmers stay viable from year to year and decade to decade, allows consumers to get what they need and want in the grocery stores.

We’re all in this together. We have to remember that fact when Congress begins reauthorizing the next farm bill or some lawmaker in D.C. proposes an arbitrary and irresponsible cut to farm policy and crop insurance. These risk management tools serve us all, especially the next generation of farmers. They are a sound and wise investment for America.

Zach Hunnicutt is a fifth-generation farmer from Giltner who raises corn, soybeans, popcorn, seed corn and milo.  This op-ed appeared in the Grand Island Independent on June 17, 2016. 

Guaranteeing Peace of Mind, Not Profits

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Critics of America’s farmers and the risk management tools they depend on would have you believe that U.S. farm policy somehow guarantees growers a plush profit.

Amid current falling crop prices, shrinking farm incomes, and rising debt loads, we’re sure most farmers would welcome such a guarantee. Too bad it doesn’t exist.

To make their case, farm policy opponents often misrepresent a form of crop insurance known as revenue protection. This kind of protection, which farmers help pay for out of their own pockets through premiums and deductibles, doesn’t guarantee profit. Rather, it helps smooth out big dips in income during volatile times.

And it doesn’t necessarily equal an indemnity payment in years with low crop prices like 2015.

Now that the insurance numbers for the 2015 crop year have been finalized, we know that total indemnities paid to growers, including revenue protection as well as coverage from weather events, were at the lowest level since 2010.

When you factor in the $3.7 billion farmers paid in premiums and the $7 billion they shouldered in deductibles, you see that it wasn’t even a break-even year for farmers from an insurance perspective.

And of all the insurance claims paid out in 2015, only 3 percent were the result of price, meaning those “profit-guaranteeing” revenue plans were rarely used. By contrast, nearly 70 percent of losses resulted from drought, rain, and excessive moisture – disasters that even the most hardened critics believe deserve coverage.

And where did farmers most experience the biggest price-related losses?

It wasn’t in the traditional Midwest operations that agriculture’s detractors like to demonize. No, it was in Rhode Island, and California, and Washington State, and Oregon, and other places where fruit and vegetable production dominate.

Farm policy antagonists once complained about these same specialty crop operations not having and adequate farm safety net. Now, ironically, they want to tear down the safety net recently put in place.

Looking at the numbers, 2015 also turned out to be noteworthy for other reasons, as National Crop Insurance Services recently examined in its TODAY Magazine.

For example, insurers wrote 1.2 million policies, covering more than $100 billion in crops on a record 299 million acres last year. That represents about 90 percent of America’s total planted farmland. Check out these facts and more in The Year in Review article.

Hopefully our critics take a few minutes to read. They might learn something.

Diversity Makes Crop Insurance Special

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Congress made crop insurance a cornerstone of U.S. farm policy for numerous reasons.

It is efficiently delivered by the private sector. Farmers and insurers help fund the system so taxpayers aren’t on the hook for the entirety of disaster aid. Payments get into the hands of farmers after disaster strikes within days, not years, but only after the claim is verified. And it’s easily tailored to the farmer’s needs no matter where they grow or what they put in the ground.

This kind of regional and crop diversification is often overlooked during farm policy debates, but it is a big part of crop insurance’s popularity in the countryside. For years, U.S. farm policy was criticized for primarily focusing on a few crops in the South and Midwest while leaving others – namely specialty crops and livestock – with little support.

That’s no longer the case thanks to smart investments in crop insurance. Now farmers and ranchers have a safety net whether they raise cattle, corn, cotton, canola, cranberries, citrus, cucumbers, cabbage, or hundreds of other crop combinations.

The chart below shows the improved availability of crop insurance products over the years, including coverage for lots of fruits and vegetables and protection for pasture, rangeland, and forage.

Over 100 Product Introductions Since 2000

And that has translated into more farmers from outside the traditional farming belt purchasing risk protection, which has decreased taxpayers’ exposure to agricultural disasters.

 

 

 

Check out the participation growth in these states – the 20 fastest growing in the country – over the past 15 years.

State 2001 Insured Acres 2015 Insured Acres* % Increase
1. Nevada 8,792 1,834,421 20,765%
2. New Hampshire 9,885 302,772 2,963%
3. Vermont 53,771 1,293,322 2,305%
4. New York 598,110 12,258,266 1,950%
5. Connecticut 27,200 233,589 759%
6. Wyoming 357,930 1,894,014 429%
7. Maine 100,866 499,704 395%
8. Utah 100,807 489,213 385%
9. New Mexico 620,312 2,720,537 339%
10. Pennsylvania 978,759 3,919,801 300%
11. Arizona 388,190 1,216,915 213%
12. Texas 16,124,120 45,988,387 185%
13. Kentucky 1,864,327 4,050,009 117%
14. Colorado 3,580,621 7,178,023 100%
15. Maryland 638,568 1,147,376 80%
16. California 4,010,128 6,759,327 69%
17. Florida 1,523,472 2,526,249 66%
18. Ohio 4,390,250 6,981,914 59%
19. Virginia 933,335 1,451,435 56%
20. Wisconsin 3,547,633 5,337,156 50%

*Includes livestock gross margin protection insurance

Amazingly, some farm policy critics want to unravel this success, which would send us back to the days of unbudgeted, taxpayer-funded, and after-the-fact disaster aid. Their legislative proposals to limit participation and cap insurance benefits to some farmers would even disproportionately harm specialty crop growers in areas outside the nation’s breadbasket.

It doesn’t make much sense. Then again, neither does attacking the tiny sliver of the federal budget dedicated to underpinning America’s food and fiber supply.

ICYMI: Farming needs strong policy and crop insurance

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Lubbock Avalanche-Journal
May 28, 2016

If I don’t take care of the land, then it won’t take care of me, so I consider myself one of the stewards of the earth. I know I’m not alone. My brethren in farming are also caretakers of the land, water and air. We want to be productive and profitable, and pass on our farming operations to the next generation better, more fertile, and more sustainable than we received it.

Given this reality, I naturally become concerned and even a bit cross when I see special interest groups in Washington, D.C., trying to paint farmers in negative light as it relates to taking care of the land and our environment. They attack farm policy and crop insurance, but in critiquing these important tools, with little or no empathy for the risks we take, they are really going after me and farmers like me.

One myth these groups perpetuate is that crop insurance encourages farmers to grow on fragile, uncultivated lands. This is simply not reality, as the number of crop acres in the country has remained stable for more than three decades at roughly 328 million. Meanwhile, the number of those acres that are insured by crop insurance is approximately 298 million.

The 2014 Farm Bill layered additional red tape to ensure conservation compliance on all acres where crop insurance is purchased, and fragile lands are protected by eliminating all crop insurance premium support for farmers if they damage wetlands or plow up native sod.

Another myth they spread is that crop insurance only helps big conventional farming operations when in fact it is a risk management tool that is available to all farmers regardless of operation, size, region or crop. I am a young farmer. I grow both conventional and organic cotton. Crop insurance is arguably more critical for me than it is for the long-established farmers, and I purchase a specialized and exceptionally valuable insurance policy for my organic crop.

It’s a big concern of mine that there is a constant need to defend crop insurance against the myths and outright lies that these special interest groups spread in Washington and beyond. And, frankly, sometimes, I’m amazed that there is so much debate in Congress about the small investment in crop insurance and farm policy, considering the return for every American.

Federal spending on these items is well below one percent of the nation’s entire budget, but the benefit to every American consumer is a safe, secure, diverse and affordable food and fiber supply. Moreover, agriculture is the backbone of a strong economy and a strong society, and from a national security standpoint, it is crucial. We don’t want to be held hostage by another country when it comes to feeding our own people. And right now we are competing with foreign countries that are investing far more in their own agriculture sectors than we are and are cheating on their commitments to free trade in the process.

This constant attacking of farm policy and crop insurance undermines those who work hard to grow the food and fiber we all rely upon.

As farmers, we have no control over weather. We have no control over markets. We have no control over our foreign competitors. We cannot just turn our operations on or off. We have to take care of the land 365 days a year. We need a safety net when commodity prices fall. We need affordable and reliable crop insurance to protect our yearly investments.

Today in my part of the country, I know plenty of farmers who are struggling to make it another year because of the current depressed farm economy while others are making the tough decision to get out of the business altogether. Meanwhile, young people are nervous about jumping into a line of work that is mired in risk and is constantly under attack by special interest groups and some lawmakers in Congress. This is an alarming trend.

Sometimes it takes something drastic to happen for people to realize what they have. I certainly hope it is not the loss of agricultural production in this country as a result of Congress chipping away at the farm safety net for us all to fully appreciate how important it is.

JEREMY BROWN is a multi-generational Lubbock farmer who grows both conventional and organic cotton in west Texas. He is on the executive committee of Plains Cotton Growers and also grows wheat, rye and peanuts.

In Contrast to the Critics, Crop Insurance Does Not Discriminate

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Perennial critics of farm policy have taken aim at one of the key risk management tools for farmers – crop insurance – and are ramping up efforts to spread misinformation about the program. Specifically, they are trying to distort how the premium discount works to leave some farmers with fewer risk management options.
Their claims include that this discount only goes to large farming operations, not small and beginning farmers, and that the discount should be capped for certain farmers.

These claims demonstrate a fundamental lack of knowledge on how insurance works and are out of step with the views of most Americans.

First, farmers purchase policies to protect their crops and operation from a loss. Crop insurance treats all farmers equally, regardless of operation, size, region, or crop. There is a discount for premiums so farmers – most of whom borrow more money each year than the rest of us borrow in a lifetime – can afford to purchase protection.

The crop insurance premium discount is not a cash payment to farmers, but rather a credit to farmers.  The only way producers actually receive money from their crop insurance policies is if they suffer a verifiable loss. This is an indemnity payment to help them recover. Further, the farmer must shoulder a deductible before receiving an indemnity.

A few years ago, Politico, a Washington, D.C.-based paper, described the premium discount this way:

“The premium discount is really an inside-the-government book transaction, involving no cash payment to the farmer, who must still make a hefty contribution as well.

“For example, a Washington state apple and cherry operation is credited with having received a $1.3 million premium subsidy on a policy covering more than 5,000 acres of orchards and $33.7 million liability. But the same farmer paid $627,409 in premiums for the coverage and got nothing back since no losses were reported.”

Most Americans support the mechanics of modern-day crop insurance because farmers are helping to fund their own safety net and taxpayers are not left paying for the entire cost of assistance when a natural disaster strikes.

A new national poll reveals that more than 80 percent of Americans believe that a thriving farming industry is critical for national security. Further, 79 percent of Americans support providing a premium discount to farmers so that crop insurance is affordable.

Yet, the affordability of crop insurance will be greatly diminished if critics have their way in preventing certain farmers from receiving discounted premiums. This is because the purpose of any insurance program is to diversify the risk pool. Insurance functions more efficiently when the pool is large and diverse, which only happens when insurance is widely available. This keeps insurance affordable, especially for beginning farmers, who typically have reduced access to credit and capital.

In the same vein, automobile insurers want older, more experienced drivers to balance losses from younger and possibly more accident-prone drivers. If there is a cap on who receives the discount it will shrink the risk pool and undermine the effectiveness of crop insurance.

Also, placing a cap on premium discounts would disproportionately affect certain growers, especially specialty crop growers and organic growers whose crops tend to have higher values and therefore more likely to have higher premiums for coverage.

In short, crop insurance does not discriminate against certain types of farmers in this country by making risk management tools affordable for some, but not to others. Rather, it is widely available and affordable for all producers. Americans support and appreciate this approach to public policy.

Political Pundit Takes to the Airwaves to Discuss Agriculture

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This week was a first for John McHenry, the well-known political pollster for North Star Opinion Research, who is in high demand during election season.

McHenry has worked with countless national campaigns and has appeared on Fox News, CNN, NBC Nightly News, BBC, NPR and many others to share research analysis and commentary. But he’s never been on farm radio…until Thursday.

North Star Opinion Research conducted a national public opinion poll to determine voters’ views of farmers, farm policy and crop insurance, and the results have been of great interest to rural America. So the National Association of Farm Broadcasting interviewed McHenry and distributed his remarks to every farm radio broadcaster in the country yesterday.

And McHenry didn’t disappoint, adding valuable context to the survey’s findings.

For example, the fact that farmers’ favorability ratings are higher than what is usually seen for the military, and the fact that there was no deviation from this popularity between political parties, was significant in McHenry’s eyes.

Since voters are generally unhappy with the country’s direction and are inundated with polarizing political rhetoric, agriculture’s bipartisan public support becomes all the more remarkable, according to McHenry.

“This is one of the rare highlights where you can say that Congress found a solution here that voters are happy with,” he concluded.

If you’re interested in hearing the interview in its entirety, click here.

More information about the poll can he found here.

New Poll: Americans Overwhelmingly Support Farmers, Farm Policy, Crop Insurance

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(OVERLAND PARK, Kan.)- Nearly 90 percent of Americans have a favorable view of farmers, and 92 percent said it was important to provide them with federal funding, according to a new national poll released today. Furthermore, positive marks cut across party lines, showing that a strong farm policy is a bipartisan issue.

“Americans overwhelmingly like farmers and support the programs that protect them,” explained Jon McHenry, vice president of North Star Opinion Research, the polling firm that explored the general public’s views on farmers, farm policy and crop insurance. “This response is not surprising when you consider that eight in 10 voters believe a vibrant agricultural industry was critical to the country’s national security.”

More than 70 percent of voters also said they believed that farmers should help fund part of their own safety net. This cost-sharing structure is at the heart of America’s crop insurance policy, with farmers paying a portion of their insurance premiums and shouldering, on average, 25 percent of crop losses through deductibles.

Those polled were impressed. Nearly 80 percent said they supported giving farmers discounts on insurance premiums and the vast majority agreed that the current premium and deductible amounts absorbed by farmers were appropriate.

Americans also weighed in on the delivery of crop insurance. When asked who should implement the system, voters agreed by a 20-point margin that farmers and taxpayers were better served by private companies delivering crop insurance instead of the government.

Support for farm policy and crop insurance even remained high when poll respondents were read a misleading statement often used by farm policy’s critics.

“In a question providing both sides, the security argument in favor of protecting farms wins by a two-to-one margin over the argument used by farm policy opponents,” McHenry said.

The public opinion poll, which was commissioned by the National Crop Insurance Services, is available at www.ncis.staging.wpengine.com. The phone survey of 1,000 registered voters was conducted April 3-7 and has a margin of error of 3.1 percent.

Professional Critics Are Never Happy

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Critics of farm policy are impossible to please and are adept at arguing out of both sides of their mouths.

For example, when crop prices around the world are low, they often blame U.S. farm policy for the falling prices and criticize it for harming farmers in poor developing countries. Then, when crop prices rebound, they often blame farm policy for higher prices and criticize it for harming poor consumers.

In other words, U.S. farmers are in a lose-lose proposition – blamed when prices are up and blamed when prices are down. The same is true when it comes to critics’ views of crop insurance.

When crop prices are up, the cost of crop insurance is usually higher and other components of the Farm Bill are lower. That’s because insurance premiums are pegged to the value of the insured crop, while other Farm Bill policies are specifically designed to kick in if prices fall.

So, critics complain about the cost of crop insurance when crop prices are up and conveniently ignore the fact that other Farm Bill costs are lower and balance out the equation.

Then, when crop prices fall, farm policy critics do an abrupt about-face. They refuse to acknowledge that crop insurance costs are down because of lower premiums and instead focus their criticisms on the rest of the Farm Bill, which kicked in as designed.

This same yo-yo style of debating is seen when we have agricultural disasters in this country, too. When farmers are lucky enough to avoid widespread loss due to drought, floods, or freezing, insurance companies write fewer indemnity checks to cover losses.

That means lower taxpayer costs, which critics overlook. It also means that insurers and the federal government, which helps reinsure the program, see underwriting gains. To agriculture’s opponents, private-sector companies seeing profit is a point of criticism.

When farmers are unlucky and meet Mother Nature’s wrath, there are more insurance indemnity checks written. That means that crop insurers and the federal government see losses. To agriculture’s opponents, the added costs associated with losses is a point of criticism.

Of course, there’s not even a mention of the fact that private companies helped cover part of the losses with private assets so that taxpayer weren’t on the hook for the whole bill.

In this impossible “head I win, tails you lose” set-up, it’s probably best for everyone to just tune out the professional critics. Instead, let’s focus on what really matters: Protecting farmers and the country’s food, feed and fiber supply with a cost effective, common-sense policy.

And that’s exactly what crop insurance is.

Insurance Basics: Value Matters

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Here’s a hypothetical situation to ponder:

In 2010, you purchased a brand-new car for $30,000. Since then, you’ve driven 100,000 miles, worn out a couple of sets of tires, and accumulated an impressive collection of dents, scrapes, and pings. Now, that five-year-old vehicle is worth $10,000. Unfortunately, you’re in a wreck and total the car. Does your insurance provider send you a check for $30,000 or $10,000?

Obviously, your auto insurance covers the value of the property at the time of the accident, not the time of purchase. Otherwise, there would be a whole lot of folks wrecking old cars to recoup the value of a depreciating asset.

Of course, the flip side is true, too. Here’s another hypothetical:

In 1975 you purchase a nice home for $50,000. Throughout the years, the surrounding area is developed. You remodel your kitchen and bathrooms and even finish out the basement with an extra bedroom, an entertainment area, and a full bath. Today, the building alone is worth $300,000. Unfortunately, it burns to the ground. Does your homeowner’s policy just cover the original purchase price of $50,000 or the full market value of $300,000?

Luckily for the homeowner, it’s the latter. And it makes sense. You will have to replace the appreciating asset at today’s market value.

Not to mention, the insurance premiums you paid throughout the years reflected the changing value of the home – premiums for a home worth $300,000 are more expensive than premiums on a $50,000 home.

These same common-sense principles apply to crop insurance, and are too often overlooked when discussing the Harvest Price Option available to farmers. Let’s consider one more hypothetical:

A farmer plants a corn crop in May that is valued at $250,000. The farmer forward contracts to sell his crop at that amount – in other words, he agrees to sell it at a locked-in price to a buyer after harvest in October. But a drought strikes that summer and most of the corn withers, leaving the farmer with little to harvest. Since this farmer isn’t the only one experiencing drought, overall corn supplies fall driving up prices nationally. Now, the value of the crop that the farmer lost is worth $350,000. What does the insurance pay?

In the hypothetical above, if the farmer paid an extra premium for Harvest Price Option coverage, the insurance would pay the value of the crop at the time of loss, or $350,000, minus the farmer’s deductible.

The farmer paid more to get that extra protection because under the forward contract, the farmer is obligated to deliver corn to the buyer at the set price, even if the farmer’s crop fails. That means the farmer must purchase enough corn on the open market at the current market rate, to satisfy the contractual obligation. In other words, the farmer must pay $350,000 to buy corn that will then be resold for $250,000.

That’s not a great deal for the farmer. Yet, agriculture’s political opponents try to spin the Harvest Price Option as some free giveaway. Such critics are being intentionally misleading.

Harvest Price Option is a policy that farmers pay more for out of their own pockets, while still absorbing the deductible. And, it’s the only meaningful risk management tool farmers have to replace the lost bushels needed to fulfill their forward marketing obligations or to feed their livestock in the event of wide-spread crop failure.

ICYMI: Farm policy is essential to maintaining ag production in the U.S.

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Agri-Pulse
March 23, 2016

If there is one place that, in recent years, overwhelmingly demonstrates the need and importance of U.S. farm policy, it is California. For the past four years, this top agricultural producing state has experienced record drought conditions and for farmers like my husband and me, it has taken a toll on our operation.

We have been growing rice in the Sacramento Valley for 30 years and we have never seen a weather event this relentless. Although the arrival of El Nino has provided much needed rain, the effects are marginal because of the intensity of the drought.

Operating loans are essential for every farmer because of the cost of producing crops, but for my family they have enabled us to keep going to the next year despite depressed yields and prices, and in some cases the inability to plant a crop at all.

We would not be able to receive this crucial financing without crop insurance and farm policy in place. Farming is an inherently risky business and bankers want assurances that we will be able to pay back the loan if disaster strikes. We were not born into farming – we built our operation from the ground up – so we still have land and equipment payments to make regardless of whether we have a good or bad growing season, or whether a natural disaster wipes out our crops altogether.

Crop insurance is something we purchase each year to manage this risk and we only receive an indemnity when we suffer a verifiable loss. Even then, it doesn’t make us whole, but it does soften the blow from a bad year.

It’s important to have this kind of safety net in place for all farmers, all across the country. And, I am always alarmed by the calls in Washington to cut what remains of the farm safety net, especially from those who have no idea what it takes to grow food and fiber. We need risk management tools now more than ever to help us overcome unpredictable weather events.

Additionally, we need policy in place to combat unfair practices with our foreign competitors like China and Thailand whose support for their rice growers far exceeds that of the United States and actually violates agreements under the World Trade Organization (WTO). While the U.S. was reforming its policy in the 2014 Farm Bill, other countries were ramping up support for their farmers, in some cases by more than a 100 percent. Their policies are trade distorting and leave American growers at a competitive disadvantage.

American farmers can and do manage extraordinary risks, year in and year out, but we cannot manage the challenges associated with unpredictable and sustained natural disasters, volatile markets, and trade distorting policies of our foreign counterparts without risk management tools like crop insurance and farm policy.

Lawmakers in Washington should consider this reality. If they want to continue to have agricultural production in this country, and in California in particular, they need to invest in it.

Lorraine Greco serves on the California Board for the U.S. Rice Producers Association. She grows organic rice with her husband in northern California.

Crop Insurance is a ‘Well-Run’ Public-Private Partnership

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The role of federal crop insurance has grown significantly through the years and it is now the key risk management tool for farmers all across the country. With this greater role comes a greater responsibility to ensure the program is working as efficiently and effectively as possible.

Part of this responsibility includes making certain that when a farmer does suffer a verifiable loss and files a claim, the indemnity payment is processed quickly and sent to the right recipient with the correct amount. In other words, making certain that there are no improper payments. This is important for the farmer who is counting on timely assistance after a catastrophic event and it’s important for taxpayers who demand program integrity.

And, new data from the U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) reveals that crop insurance stands as an example of a successful, properly-managed public-private partnership.

During the recent annual meeting of crop insurers, RMA administrator Brandon Willis announced that the error payment rate has improved by more than 50 percent from 5.5 percent in 2014 to 2.2 percent in 2015. By way of comparison, the average error rate government-wide was 4 percent.

“This demonstrates that the crop insurance program can withstand the scrutiny,” Willis said. “It’s a good story. It tells the story that crop insurance is a well-run program with an error rate far below the government average.”

An improper payment occurs when funds go to the wrong recipient, the right recipient receives the incorrect amount of funds, including being paid too much or too little, or the recipient uses funds in an improper manner. And, as Willis noted, many errors are simply rooted in data entry and reporting mistakes.

Perennial critics of farm policy have often cast crop insurance in a negative light pointing to any error payment rate as an excuse to cut, or even, gut the program. As a result, RMA, crop insurers, and even Congress have worked together to improve the error payment rate through the years.

In fact, as former RMA administrator, Kenneth D. Ackerman recently wrote in a blog post, “RMA’s eye-catching new 2.2 percent ‘improper payment’ rate for 2015 was no fluke. Rather, it was the product of a long-term commitment and years of work by a wide range of people who deserve credit for sticking to it.”

Going forward, the crop insurance industry will continue to work with stakeholders to ensure the accountability and integrity of this critical risk management tool that farmers and consumers rely upon to maintain a steady and affordable food and fiber supply.

Insurance Basics: The Risk Pool

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All insurance, from auto to life, health, and crop insurance, works best when it expands the number of people it covers. That’s because the broader the participation, the more widely risk can be spread. And by spreading the chance of loss among a diverse group of insureds, premiums become more affordable for everyone involved.

This concept is known as the “risk pool.”

Think of it like this: Car insurance would not work if only a handful of drivers participated – especially if those drivers were accident-prone or heavily ticketed. Insurance companies would be hesitant to offer coverage and premiums would be astronomically high. A deep bench of experienced drivers with safe driving records is needed in the risk pool to balance out the equation and help offset losses.

The same can be said for health insurance. Why else do you think there was so much discussion on enrolling young, healthy people during the Affordable Care Act debate?

Crop insurance is no different, except crop insurance is about acres covered, not the number of farmers participating. If 1,000 acres is farmed by one farmer or three smaller operations is of little to no consequence. Getting the 1,000 acres covered is the key to expanding the size of the risk pool.

Widening the risk pool is so important that many forms of insurance encourage participation through incentives or mandates. If you have a mortgage, for example, you are obligated to carry insurance. State laws require auto coverage. Health insurance is aided when employers and the government help cover a portion of the premium.

In the case of crop insurance, these incentives didn’t always exist. As a result, coverage was expensive, policies were unavailable for many crops, and few people were insured. And when disaster struck, farmers looked to Congress to help them rebound through expensive, unbudgeted disaster legislation.

In fact, in the early 1990s, less than 30% of farm acreage was insured and farmers were vulnerable to risk. Having been stung by $70 billion worth of disaster bills since 1989, lawmakers needed to find a way to boost crop insurance participation.

Congress expanded the size of the risk pool through a three-pronged strategy.

First, it said crop insurance must be available to all – farmers couldn’t be excluded because they grew canola instead of corn or because they farmed in California instead of Connecticut. Then, the government invested in the development of new policies for crops, regions, and farmers that were traditionally underserved. Finally, it incentivized participation by discounting farmers’ premiums.

And the results speak for themselves. Today, 90% of acres are covered, taxpayer-funded bailout packages are a thing of the past, and farmers get assistance quickly when they need it thanks to private-sector efficiency.

Yet, despite these advances in modern risk management, some of agriculture’s political opponents have demanded that these investments be unraveled and that we return to the old inefficient and expensive model.

These farm policy critics want to exclude farmers with large operations from the system and cap benefits for all growers. Doing so would remove large swaths of acres from the risk pool, alienate experienced farmers with lower risk profiles, and ultimately make it harder for smaller, beginning farmers to get insurance coverage.

Just like removing all the safe drivers from auto insurance, that would be a wreck for everyone involved – including taxpayers.

NFU Concludes Convention Season in Style

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The first quarter of the year is always busy in agricultural circles, with most farming organizations – including the National Crop Insurance Services – holding annual conventions to discuss the issues likely to face farmers in the upcoming year. The National Farmers Union’s show usually completes the pre-Spring meeting circuit, and this year they are doing it with a packed program that kicked off over the weekend. President Barack Obama addressed the group via video. Agriculture Secretary Tom Vilsack is there in person. And attendees will also hear from Minnesota Gov. Mark Dayton (D), U.S. Senators Al Franken (D-Minn.) and Amy Klobuchar (D-Minn.), and retired U.S. Army General Wesley Clark.

Amid these headliners will be one of crop insurance’s own, Jim Korin, the president of QBE NAU, who will tell the group why crop insurance must remain affordable, available, and economically viable to succeed in the future.

Crop insurers appreciate NFU’s invitation to address its members, and we certainly appreciate NFU’s support of a strong crop insurance system throughout the years. The organization was an essential component of the coalition that beat back legislative attempts last year to reopen the Farm Bill and weaken farmers’ primary risk management tool.

To say thanks, we wanted to spotlight a couple of great quotes from Farmers Union leaders:

“The evolution to crop insurance has effectively moved risk management away from the public sector, funded exclusively by taxpayer dollars, and toward the private sector, where farmers and crop insurance companies help shoulder part of the cost of natural disasters. This is good for taxpayers because it takes them off the hook for the entire bill when disaster strikes, good for farmers who must always keep their risk management plan in mind, and good for rural America because farmers are the engines that generate economic activity.”

Kent Wright, President Northwest Farmers Union
Capital Press, June 18, 2015

“With three consecutive negative farm income forecasts, we simply cannot afford to undercut the farm safety net. NFU urges Congress to reject…crop insurance cuts, as it has in years’ past.”

Roger Johnson, President, National Farmers Union
NFU Press Release, February 9, 2016

Thanks again for your continued support, NFU members. And have a great show as you close out the farm convention season in style.

Thank You, Commodity Classic Participants

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This week kicks off the Commodity Classic, a huge trade show sponsored by the corn, soybean, wheat and sorghum industries.  As agricultural leaders gather to discuss current issues and set policy priorities for the coming year, we wanted to take a moment to thank farmers from each sector for their continued support of crop insurance.

These farmers told Congress that crop insurance was their top priority in the 2014 Farm Bill and urged lawmakers to “do no harm” during the debate.  They stood up for their top risk management tool and fought hard to beat back attempts late last year to cut crop insurance funding.  And their trade organizations recently sent a letter to lawmakers (link to PDF) asking that the system not be weakened this year.

Some leaders from these industries have even taken to the nation’s newspapers to pledge their support.  Here are just a few examples from the past year:

“Mother Nature is the toughest, most unpredictable boss.  Farmers are resilient and they adapt, but a safety net is crucial to their survival.  And it’s not a safety net if it’s not affordable.  That’s what today’s crop insurance offers farmers.  A safety net that is both affordable and widely available.”

Wade Cowan, American Soybean Association

High Plains Journal, April 6, 2015

“The food security we enjoy in this country is made possible in no small part through United Stated farm policy.  With the 2014 Farm Bill, Congress…made crop insurance the centerpiece, and quite rightly….  [I]f it weren’t for crop insurance I would not be in business.  And crop insurance is good for consumers and taxpayers, too.”

Brett Blankenship, National Association of Wheat Growers

The Spokesman-Review, May 24, 2015

“There have been a lot of changes to farm policy through the years to reflect the changing times, but given the diversity of agriculture in our country – and the way crop insurance can be uniquely tailored to address disastrous conditions in an efficient and effective way – it should only be strengthened in years to come.”

Bruce Peterson, Minnesota Corn Growers Association

The Hill, June 3, 2015

“Crop insurance enables farmers to rebound quickly after a disaster and it prevents dramatic farm loss, which in turn allows them to pay credit obligations and fixed expenses.  This system is hugely important for not only farmers, but also to rural communities and the national economy as a whole.”

Tim Lust, National Sorghum Producers

Agri-Pulse, August 21, 2015

Thank you, farm leaders for what you do for this country.  And thank you for what you do to defend crop insurance.

Video:

https://www.youtube.com/watch?v=9UuRiIsofJ8

Just the Facts:

http://www.ncis.staging.wpengine.com/just-the-facts/is-crop-insurance-tar¬geted-to-promote-the-production-of-a-few-favored-commodity-crops-and-biased-against-diversity-in-production-which-lowers-risks-and-may-enhance-sustainability/ 

 

CROP INSURANCE IN ACTION: Greg Wegis, Bakersfield, California

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Greg Wegis’ great-grandfather established their multi-generational farm in the early 1900s and the have been farming in Bakersfield, California ever since. Wegis grows almonds, pistachios, tomatoes, corn, wheat, alfalfa and cherries and he plans to start growing table grapes in the near future.

“I have a passion for what I do,” Wegis said. “Being raised around my grandfather and my dad, just talking about it. It’s a lifestyle; producing food for people to eat and nourish their bodies. It’s a good feeling and an occupation I think that’s very noble.”

Today Wegis’ farm employs 80 people full-time to keep everything running smoothly. Wegis said he prides himself on being a family-oriented business, knowing each one of his employees and their family.

“We take care of our people, because they take care of us,” Wegis said. “They take care of our land and we treat them as an extension of our family. I think that is unique in the multi-generational family farming business; you don’t find that in a lot of other industries.”

Not only does Wegis feel his employees deserve credit for the hard work they provide, but he further recognized that his farming operation wouldn’t be possible without all of the supporting companies that aid them in their day-to-day operations. This includes companies that help with tractor and machinery parts, processing and manufacturing, sales, bankers, insurance agents, fuel, transportation companies and “the list goes on and on.”

According to Wegis, farm income in California is a $47 billion industry. The county he resides in, Kern County, is responsible for providing a little over $6 billion. Translating that into the amount of jobs agriculture provides within Kern County, Wegis said it’s “somewhere around 70,000 jobs.”

“Just the almond industry alone, employs about 110,000 individuals in the Central Valley,” Wegis explained. “And we’re connected. So whatever happens to us, in turn affects them, either in food prices or food availability.”

Minus a great winter in 2002 and 2011, the area Wegis resides in has been in a drought for over four years. To combat this issue, Wegis said their farming operations rely on two separate solutions to stay sustainable and in business.

“With our farm, we have around 10,000 acre-feet of water that we’ve contracted for. My grandfather and his generation helped build the Central Valley Project and the State Water Project, (bringing) us water from Northern California to help us be more sustainable south of the Delta Area.”

In order to take part in the Central Valley Project and the State Water Project, farmers in the California region must pay a set amount of money regardless if they receive the designated amount of water or not (water supply levels rely on what is available each year in the area’s designated reservoir, which could lead to the possible shortages). By doing this, Wegis said it has helped “replenish the aquifers” that were once depleted and helps keep farms in the region sustainable.

“We’re the breadbasket of the world here in Central Valley, as far as fruits, vegetables, nuts and milk,” Wegis concluded. “The United States relies heavily on us to produce that food. If we have to reduce our footprint, we cannot farm the acres we used to, and that’s definitely going to affect everyone. And that’s the message we’re trying to [get] everybody [to] understand.”

Wegis said he insures their crops to protect them against natural disasters, diseases or insects that they have little control over. “Without crop insurance it would not allow us to farm.” In the end, Wegis attributes crop insurance as a vital tool in agricultural risk management. “It’s just a crucial tool to circumvent the ups and downs of Mother Nature and agriculture,” Wegis expressed.

ICYMI: Insure our food supply and our economy

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The Desert Sun
February 14, 2016

If you have a car, you have auto insurance to protect against property and bodily harm. If you own a house, regardless of its size, you have insurance to guard against costly damage. Chances are good you have policies on your health and even your life, too.

These forms of insurance are common, and as such, people have a high degree of familiarity with them. However, few people realize that the food on their table remains affordable thanks, in part, to insurance protection. Or that America’s food security is improved by insurance because it helps U.S. farmers manage risk.

Crop insurance, which underpins the nation’s agricultural bounty, works like other kinds of insurance, and it is particularly important in a state like California that has such a diverse and thriving agricultural sector. In fact, for most fruit and vegetable growers it is the only safety net available.

This insurance is what helped many California farmers bounce back after the recent drought and plant another year, just as it does following freezes and other natural disasters.

The 2014 Farm Bill made big investments in making the system work better for specialty crop growers in states like California. For example, the new Whole Farm Revenue Protection policy enables a grower to insure his or her entire farm instead of having to buy individual policies for each and every fruit and vegetable planted. This new policy is not crop specific, and now crops like dates, spinach, melons, and other specialty crops may be insured if the producer has at least five years of history growing that commodity.

Thanks to these investments, Californians now have $8.7 billion worth of crops protected on more than 6.8 million acres – including almonds, grapes, pistachios, walnuts, rice, and tomatoes to name a few. It’s no wonder then that the crop insurance industry chose the state as the site of its annual convention.

This week, hundreds of agricultural and insurance industry leaders will be in Riverside County to discuss new developments in crop insurance protection and challenges agriculture will face in years to come. Chief among those challenges will be constant political attacks against farmers.

Despite crop insurance’s risk-sharing structure that minimizes taxpayer cost, there are critics who want to undermine it and are floating proposals to cap coverage and publicly shame farmers, which would disproportionately hit specialty crop growers. But like other USDA programs, crop insurance needs to be widely available to protect all farmers, big or small, no matter what they produce.

These attempts are particularly appalling in a region like the Coachella Valley, where agriculture is such an important economic driver and where the community does so much to aid the underprivileged through farm-to-table programs like Hidden Harvest.

Agriculture’s opponents can be rebuffed if all of agriculture will pull together to defend its way of life. Coordination and communication will be key to confronting our critics, and ideas for working together and delivering a unified message to lawmakers will be our top priority at the annual meeting this week.

About the author: Thomas P. Zacharias, Ph.D., is president of National Crop Insurance Services, the Kansas-based trade association hosting this week’s convention.

Crop Insurers Celebrate Past Success, Set Sights on Future

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Crop insurers and farmers have shouldered their share of challenges in recent years, ranging from an historic drought to lower-than-expected financial returns, legislative debates, and implementing a new Farm Bill.

But Tim Weber, chairman of the American Association of Crop Insurers and National Crop Insurance Services, said today that those challenges have only strengthened crop insurance providers and better equipped them for the future.

“I believe crop insurance is stronger today for the obstacles it has faced in recent years and most importantly, it is ready to meet tomorrow’s challenges,” he told colleagues at the industry’s annual conference.

Weber, who is coming to the end of his term as chairman, used his remarks to reflect back on lessons learned during pivotal years within the industry – a time, he said, when teamwork and building alliances was emphasized.

“Overall, I am very proud of what we have accomplished,” he said. “These accomplishments were the result of a hard-working, talented workforce that was willing to work together as [insurance providers], agents, adjusters, and industry allies to overcome attempts to weaken our farmers’ and ranchers’ most important risk management tool.”

Weber noted that, despite crop insurance’s past successes and its popularity with farmers, agriculture’s opponents will continue to criticize the farm safety net. He pointed to the recent Bipartisan Budget Act of 2015, which sought to cut $300 million a year from crop insurance, as proof of that criticism and how rural America must counter it.

“Farmers from across the country came to our defense…as did the agent force, the lending community, input providers, Main Street businesses, the conservation world, and leading voices from academia,” he explained. “Notwithstanding this level of support…we would never have won this battle if not for the leadership of key lawmakers who were not bashful about standing up for agriculture.”

Weber urged the group to remain vigilant moving forward by focusing on industry cooperation and collaboration with third-party allies. He also urged insurers to invest time and resources in the political process as a way to blunt future critiques.

“We need all Members of Congress to hear directly from their constituents regarding the importance of maintaining an effective crop insurance program,” he concluded. “After all, every person in this country benefits from a dynamic, financially healthy agricultural industry. Not only does it provide a dependable supply of domestically grown food, fuel, and fiber, but it also supports economic and job growth.”

Crop Insurance is Money Well Spent by Farmers

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Many folks might not realize this, but the passage of the 2014 Farm Bill was a turning point in American history, from an agricultural perspective. Largely gone are the days of government support programs like direct payments. In their place, and at the center stage of farm risk management tools, is crop insurance.

I had a chance to learn the value of crop insurance first-hand when my cousin and I rented our first farm together in 2012. We’ve been farming with our family for many years, but felt it was time to expand out and grab some of our own. Of course, little did we know that the year we kicked off our farming careers would soon become the driest year in decades. We lost all of our dryland crops, roughly forty percent of our acres that year. Thankfully, we had purchased crop insurance.

Unlike days of old, crop insurance is not a federal handout. In fact, if farmers want to enjoy the protection provided by crop insurance, they must purchase it. And they do so willingly, spending roughly $4 billion per year out of their own back pockets on crop insurance premiums alone.

For most beginning farmers, crop insurance is nearly a necessity, since banks are hesitant to make loans to farmers who lack sufficient collateral. Crop insurance allows banks the opportunity to increase lending capabilities with the security of crop insurance. That’s because with a crop insurance policy in hand, banks feel more secure making those loans to farmers, since there’s a guarantee of revenue even if the crop fails.

Crop insurance is a public-private partnership whereby individual farmers like me can buy policies for insurance that is specifically tailored for our tolerance to risk and the profile of our farm. Crop insurance is affordable to farmers, thankfully, because the federal government provides a discount, ensuring that all farmers, young and old, big and small, can purchase policies if they choose to.

Farmers buy crop insurance for the same reason drivers purchase auto insurance: it offers some degree of stability in times of disaster. Crop insurance has become, in essence, the nation’s insurance policy for the food supply. When Mother Nature strikes and farmers lose their crops, those with crop insurance policies in hand can bounce back and plant again the next year.

Crop insurance has also removed some of the financial risk from taxpayers. Prior to the rise of modern day crop insurance, the wide-scale disaster that we experienced with the great drought of 2012 would have necessitated a very expensive, ad hoc disaster bill from Congress. Those bills are big and are fully funded by taxpayers.

And while anything is better than nothing when you literally lose the farm, those disaster funds usually took a year or more to arrive in the hands of farmers who needed them. In my case when I lost forty percent of my crop in 2012, a year would have been much too late.

Crop insurance, on the other hand, is administered by private insurance companies and the indemnity arrives in weeks or a month or two, not years later. The crop insurance policy I purchased not only allowed me and my cousin to pay back our production loan, but also meet our forward contracting obligations. And we were able to bounce back and plant the next year. That’s a smart public policy because it ensures food security for our nation.

Of course crop insurance has its critics, and their sights are squarely on crop insurance, since it’s really the only game in town. And that’s why it’s important for farmers to speak up and let their elected officials know how much they value this risk management tool.

Needless to say, if we hadn’t purchased crop insurance our first year of farming, my cousin and I would be spending years paying off that production loan. And without this valuable risk management tool available, I’d venture to say many more of America’s farmers would have been joining us.

Scott Reilly is a farmer and crop insurance agent who lives in Spalding, Nebraska. This op-ed appeared in the Albion News on February 3, 2016.

Insurance Basics: How Crop Insurance Stacks Up to Other Insurance Products

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The concept of minimizing risk and financial loss by purchasing insurance is not a new or radical one. People have been doing it for centuries to guard against the financial pain that results from an accident or loss.

Americans are most familiar with health, auto, home, and life insurance, because most Americans have experience with these policies.

And most Americans understand basic insurance concepts and terms. For example, working through an agent to purchase a policy that is backed, or underwritten, by a private company; paying a bill, or premium, for that protection that is calculated based on your unique condition; shouldering some form of a loss, or deductible, before insurance kicks in; and receiving reimbursement, or an indemnity, only after the loss is verified by a trained claims adjuster.

Despite what the critics would have you believe, crop insurance operates similarly to these other types of insurance, and it is based on the the same philosophies and business principles.

  • Agents help customers choose the appropriate policy for their needs, and then a company underwrites it. There are 12,000 crop insurance agents who helped farmers purchase 1.2 million policies from 18 insurance companies in 2015.
  • Premiums are paid every year for coverage. For farmers, that means cumulatively paying more than $4 billion out of pocket each year.
  • A deductible must be met before an indemnity is paid to help restore the condition that existed prior to the loss. On average, farmers must lose roughly 30 percent of the value of their crop before their insurance takes over.
  • Claims must be verified and adjusted before they are paid out. With crop insurance, that job falls to roughly 5,000 claims adjusters tasked with understanding crop conditions on more than 298 million acres nationally.

Of course, the parallels are not perfect because agriculture is a unique kind of business that suffers unique kinds of losses. Unlike other insurance lines, agricultural losses tend to be geographically targeted and severe.

There is no chance that every car in a city will be simultaneously totaled, or that every person in a state will need medical help at the same time, or that every home in town will need a new foundation on the same day. But a single flood, storm, or drought can cause a catastrophic loss for every farming operation in a county or region, and that makes it much harder to insure.

In addition, the likelihood of a hurricane hitting Florida farmland or a drought wilting Texas crops is statistically much greater than triggering a disability or life insurance claim.

Because of this higher risk, the concentration of losses, and the likelihood for wide-scale disaster, crop insurance policies would be cost prohibitive and very limited without some government incentive.

Thus, America has a crop insurance system based on a public-private partnership between private insurance providers and the U.S. Department of Agriculture – a system that after decades of refinements and investments has ascended to become the cornerstone of modern-day farm policy.

ICYMI: Crop Insurance Can Help Keep Multi-Generational Farms Within the Family

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My farm has been in my family since the mid-1800s. I have seen firsthand how farming has changed over the decades. It is certainly more expensive to farm than when my parents and grandparents and great-great grandparents farmed the land, but one thing hasn’t changed in more than 150 years: farming is an unpredictable business.

Farmers can’t predict the future, but we can make a genuine effort to be smart, informed business owners. We try to make the right decisions and work with what we have. The problem is when ‘what we have to work with’ is ripped out from underneath us. Without crop insurance, many farmers wouldn’t be able to keep farming. Cutting crop insurance would be pulling the rug from underneath agriculture.

Before the modern day crop insurance system, farmers relied on ad hoc disaster relief payments. This was a costly and unpredictable option for all of us – the government, the taxpayer and the farmer, who in some cases may have received a payment too late to avoid bankruptcy.

Congress agreed that crop insurance was the best risk management tool for farmers. In the 2014 Farm Bill, they implemented a crop insurance system that ensured farmers would have access to affordable crop insurance while removing the risk from the taxpayer. In stride, farmers have made operating decisions with the assumption that all the policies of this bill would be in place until the Farm Bill expires in 2018.

Now, in 2015, this proven risk management tool, crop insurance, is in front of the firing squad. I’m not certain why some Members of Congress are willing to turn their backs on farmers now. Washington is nearly 900 miles away from my family farm. From that distance, it may be easy to assume that cuts to farm programs, like crop insurance, would have no effect on farmers, but that’s not an accurate picture.

Crop insurance is the only safety net that most farmers have anymore. Nearly all the cropland in the United States is protected by crop insurance. In Wisconsin, a majority of crop acres are insured, including grain commodities and specialty crops.

Insurance not only allows farmers to face natural disasters and damaging production years without losing everything, but it provides assurance that we can make payments to our banks. The same way any person in this country cannot get a house loan or a car loan without proof of insurance, agricultural banks want the guarantee that farmers can make their payments.

The agriculture economy is struggling. Farm income continues to decline, crop prices are down and inputs continue to rise. The 2015-16 farm year may be a make or break year for many farmers who are ending the year in the red. Forty years ago, a farmer could lose a crop one year and still farm the next. Nowadays one crop loss could end someone’s farming career. In the current state of agriculture, we can’t afford to have another leg chopped off our stool that’s already leaning.

My wife and I have risked our livelihood to maintain the farm for our children and grandchildren, just as my parents and grandparents did for us. Without crop insurance, we would have to quit farming. For the events we can’t predict, crop insurance ensures we won’t lose our multi-generational family farm.

Darrell Crapp is a farmer from Lancaster, Wisconsin. He farms in partnership with his two sons.  This op-ed appeared in the Prairie du Chien Courier Press on January 20, 2016.

WSJ Spotlights Crop Insurance Business

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Farm policy opponents love to tell tall tales of crop insurance providers banking huge returns. In a quest to eliminate farmers’ primary risk management tool, they repeatedly attempt to mislead lawmakers into believing that crop insurance profits are guaranteed and will remain rosy for perpetuity.

Luckily, America’s premier business publication isn’t buying such nonsense and is actually reporting on what’s transpiring in the marketplace, where a string of expensive natural disasters and low commodity prices are reshaping the industry.

Just before New Years, the Wall Street Journal summed up the situation in an article titled “Cargill to Sell Crop-Insurance Unit to Silveus.”

The business of insuring farmers’ crops against financial or physical losses has grown tougher as corn, soybeans and wheat prices have slumped over the past three years, mainly due to a string of bumper crops and benevolent weather, according to Keith Coble, a professor of agricultural economics at Mississippi State University.

“Reimbursement for these companies is on a percentage of the [insurance] premium, and the premium is tied to the value of the crop,” Mr. Coble said.

Futures prices for corn, the most widely grown U.S. crop, have declined nearly 50% over the past three years, while soybean and wheat futures both are down about 40%. Other players, including tractor maker Deere & Co. and biotech seed giant Monsanto Co., have sold crop-insurance units over the past year as declining crop prices have pinched farmers’ wallets and pressured profits for the companies that sell farm supplies.

Wells Fargo & Co. this month agreed to sell its Rural Community Insurance Services, one of the largest U.S. crop-insurance providers…

If crop insurance profits were really so enormous and guaranteed, why are well-known companies headed for the exits? No one ever said farm policy critics exercised much common sense in their campaign to deceive.

NCIS President: “Opponents of Farm Policy Have Bad Memories, Bad Metrics and Misleading Messages”

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NCIS President Tom Zacharias took on opponents of farm policy during more than a dozen live interviews at the National Association of Farm Broadcasters Convention in mid-November.

“The opponents of farm policy have bad memories, bad metrics and misleading messages,” noted Zacharias, who was referring to the 11th hour budget deal cut in late October that would have crippled agriculture’s safety net. “This destructive proposal would have forced a new SRA renegotiation before the end of next year around an arbitrary rate-of-return target so low that it would have effectively ended private-sector delivery.”

Zacharias reminded radio hosts that the private sector delivery of crop insurance — which ensures farmers receive their indemnity check for verified losses in weeks not years — was one of the chief reasons why farmers have adopted crop insurance as their primary risk management tool.

“Farmers have embraced both the personalized risk management plans that they work out with the crop insurance agents and the speed at which help arrives after they experience a loss,” Zacharias added.

Zacharias explained that before the advent of the premium subsidy and private sector delivery; only about 30 percent of cropland was protected by crop insurance.

“Those who would cut crop insurance further would literally turn the clock backward by decades, removing private-sector delivery and driving down enrollment in the program,” he said. “Today, that number is easily more than 90 percent.”

Farmers are the engines that drive the rural economy, and when it became clear that the farm safety net was under attack, rural America rallied. Zacharias noted, “Farmers from across the country called on their congressional delegations demanding that the cuts be stopped. Commodity organizations pulled out all the stops to educate lawmakers about the need for effective and affordable risk management tools, while input providers and agricultural lenders also weighed in.”

When looking towards the opposing side, he explained that opponents of agriculture have purposely confused the public about gross revenue versus net profit to spread misinformation about crop insurers’ returns. But when the facts are laid out and terms are clearly defined, it is clear that business returns have fallen well short of the levels necessary to preserve private-sector delivery of crop insurance.

“The actual bottom line return for crop insurance companies has fallen well below other lines of insurance, with crop insurers are losing 1.4 percent under the 2011 SRA,” Zacharias explained.

Despite the misleading rhetoric, rural America rose to the occasion and fought hard for the crop insurance industry. “All of that effort paid off in the end, with farmers and their allies in rural America securing a promise from Senate and House leaders to restore the full funding of the program in the omnibus budget deal at the end of the year,” Zacharias concluded.

Although it made for many sleepless nights, the harmful proposals were neutralized – for the time being – by passage of the highway bill that will restore $3 billion worth of cuts to the nation’s crop insurance program.

New Crop Insurance Video Tackles Common Farm Policy Misperceptions

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Investments made in farm policy and crop insurance benefit Americans, according to a new video released earlier this month by National Crop Insurance Services (NCIS).

The two-minute educational piece was made public as Congress worked to reverse harmful cuts to crop insurance made during last month’s Budget Agreement. If those cuts remain in place, agricultural leaders fear it would cripple private-sector delivery of crop insurance, and with it a key component of the 2014 Farm Bill.

Farm policy critics often use misinformation and misperceptions about agriculture to attack crop insurance, and NCIS produced its video to help combat those efforts.

“Instead of getting a check in the mail, farmers now get a bill,” the video explained. “And, because private insurers deliver the system and help shoulder risk, taxpayers aren’t left footing the whole bill when disaster strikes.”

Farmers spend $4 billion a year combined, to buy crop insurance protection. This stands in sharp contrast to the days of direct government payments and $70 billion in disaster bills before crop insurance’s rise to prominence, noted the video.

The piece also tackled the often-misunderstood issue of private-sector returns for delivering crop insurance. Under a 2011 agreement between the government and crop insurers, 14.5 percent was targeted as an expected gross revenue.

“But those returns aren’t guaranteed and haven’t materialized,” NCIS said in its video. “Actual gross revenue turned out to be 5.7 percent – not even half the targeted amount. When you subtract expenses, crop insurers lost 1.4 percent from 2011 to 2014.”

The cuts included in the recent congressional budget package would lower returns by another 38 percent, further compounding private-sector losses and making it extremely difficult for crop insurance providers to stay in business.

“Unless this trend is reversed and the attacks on crop insurance stop, farmers will be left without the tools necessary to manage falling commodity prices and extreme weather,” the video concluded. “Taxpayers will be left holding the bill once again.  And worst of all, because every American eats, every American will be harmed.”

CROP INSURANCE IN ACTION: Mike Quinn, Garner, North Carolina

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If there’s anything the droughts of 2011 and 2012 taught American farmers, it’s the importance of being prepared for anything.

That includes occasional years of dealing with dry conditions trying to grow the Carolinas’ homegrown cotton crop.

Michael Quinn, the president and CEO of Carolinas Cotton Growers Cooperative, Inc., has witnessed how both droughts and hurricanes can wreak havoc on farms and cause lost income for farmers.

What is important is how such risks are mitigated now that farmer-members have turned to crop insurance coverage for protection.

“Crop losses will occur from time to time,” he noted, adding “these losses would be devastating to private underwriting and cost prohibitive without a public/private partnership to underwrite and deliver the appropriate protection.”

Read Mike’s entire story here.

This Drought Just Isn’t Giving Up, But Farmers Aren’t Quitters

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California’s central valley has been called America’s salad bowl, but honestly in the last four years, it looks more like a dust bowl than a vegetable garden.  The historic drought has caused many California farmers to pay prices for water – just to keep their orchards alive – that most Americans would find unfathomable.

Almond, stone fruit, grape and citrus owners once paid roughly $70 per acre foot to ensure that their long term investments had enough water to remain healthy and productive.  That cost is now as much as $1,300 per acre foot – about an 1800 percent increase – all while the retail value of their crops has risen very little in comparison.

Estimates are that 170,000 jobs in Kern County alone are directly connected to farming and harvesting.  But the number of jobs connected to supporting those farmers, growers and harvesters is around eight times that amount.  Crop insurance acts as an underpinning for all of these important jobs and productivity that represent a sizeable portion of our economy.

In the past, a wide scale disaster of this magnitude would have triggered a series of very expensive ad hoc disaster bills paid for exclusively by taxpayers.  But there has not been a single disaster bill passed even though this drought refuses to release its grip.  And that’s because nowadays, farmers are able to purchase the protection and peace of mind of crop insurance.

Crop insurance is a public private partnership whereby farmers purchase policies with their own money, and the policies are sold and serviced by participating companies and agents.

Clearly, the success behind crop insurance is that it’s affordable, viable, and available.  Unlike other forms of insurance, any farmer who wishes to purchase crop insurance can do so, regardless of the size of their farming operation or how many years they may have under their belts farming.

Farmers prefer crop insurance because it allows them to pay a premium to help remove some degree of risk from a very volatile business.   Twenty years ago, many farmers had never heard of crop insurance.  Today, crop insurance protects more than 90 percent of planted acres nationally.

A crop insurance check will never come close to what a farmer can get from a good harvest.   But it does offer farmers some peace of mind so that they know that if Mother Nature gets ugly, they can bounce back and be in business again next year.  That’s good for consumers, who don’t want their food supply disrupted, and good for the rural economy as well.

When I began this career 13 years ago, I was surprised that bankers were making loans without the guarantee of crop insurance.  Obviously, that doesn’t happen much anymore. In fact, it’s very difficult for farmers to get a loan at all without a crop insurance policy in hand.

Of course, crop insurance has its critics who try and make the program sound like another federal handout.  Nothing could be further from the truth.  In fact, when farmers purchase crop insurance, they receive a bill, not a check. And only receive a payment if they incur a loss greater than a deductible amount chosen a year in advance.  Just like homeowners insurance, farmers buy crop insurance hoping they won’t have to use it, but rest better at night knowing they are more secure.

Yes, this drought has been historic and is about as stubborn as a drought can be.  But farmers are hardworking, honest and smart businessmen and women who have armed themselves with the best tools possible to weather this storm.  And crop insurance has ensured that California’s central valley will remain America’s fruit and vegetable garden for generations to come.

Todd Snider is a crop insurance agent, Kern County Farm Bureau director, Bakersfield Homeless Center director, and resides in Bakersfield, California.

This op-ed appeared in the Bakersfield Californian on November 3, 2015.

 

Technology, Sustainability and Insurance Essential to Agriculture’s Future

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Farmers and ranchers are tasked with producing more food and fiber than ever to meet the world’s growing appetite, and they have to do it while preserving scarce natural resources and dealing with extreme weather and volatile markets.

A combination of new technology, smarter farming practices, and government policies will be required to succeed, according to experts at a recent international agriculture summit held in Kansas City.

Don Preusser, executive vice president and chief marketing officer of Farmers Mutual Hail Insurance Company of Iowa, explained that the global agricultural sector is already evolving and altering the way the world farms.

“Agriculture is rapidly changing as operations become larger, more commercialized, technologically advanced, and vertically integrated,” he told hundreds of attendees of the International Association of Agricultural Production Insurers (AIAG) biennial conference.

“Precision agriculture is driving significant productivity and efficiencies gains, helping to grow and secure global food needs,” Preusser concluded. “And granular field level data combined with predicative analytics will soon create new insights and innovative risk management solutions.”

When it comes to risk management, no tool is as important for U.S. farmers as crop insurance.   AIAG traveled to America for the first time ever so leaders from more than 30 countries could learn more about how the dynamic U.S. system operates.

Tom Zacharias, an AIAG board member and president of the Kansas-based National Crop Insurance Services, explained that the U.S. model is characterized by its unique private-public partnership and cost sharing.  “U.S. crop insurance benefits from the efficiency of the private sector, comprised of companies, agents, claims adjusters, and reinsurers” he said.  “Meanwhile, the government has made smart investments to keep policies affordable for farmers and widely available across a spectrum of crops and geographic locations.”

Zacharias also said that farmers bear a significant portion of the cost, which has had the desired effect of reducing taxpayer exposure to agricultural risk.  “U.S. producers collectively spend $4 billion from their own pockets each year for crop insurance, and they shoulder losses through deductibles before receiving an indemnity,” he noted.

But none of it would have been possible, Zacharias said, without a commitment from U.S. policymakers in recent years.  He hopes strong support will continue in the years to come and that America’s successes can provide a roadmap for insurers and farmers world-wide.

Library of Congress Adds Crop Insurance Website to its Historical Collection

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National Crop Insurance Services (NCIS) announced recently that its website has been selected by the United States Library of Congress (LOC) to be part of America’s historic collection of Internet materials.

For nearly two decades, the LOC has catalogued digital materials spanning a variety themes, events, and issue areas with the purpose of capturing records of historic significance that would otherwise be lost because they were never printed on paper.  The NCIS website, www.CropInsuranceInAmerica.org, will be a part of the archived public policy records.

“It is an honor that the crop insurance industry was chosen to be part of this esteemed collection,” said NCIS President Tom Zacharias. “Crop insurance has certainly made history in recent years by emerging as the cornerstone of U.S. farm policy and protecting the country’s farmers from historic floods and droughts.”

NCIS launched the website in 2008 to better explain the benefits of crop insurance to farmers, taxpayers, and consumers, and to demonstrate how the program helps drive the nation’s rural economy.

The site contains videos and testimonials from farmers following disasters; a section called “Just the Facts” that is devoted to answering policy questions with academic research and public data; an electronic version of the industry’s quarterly magazine Crop Insurance TODAY®, which dissects the issues facing crop insurance; and links to numerous press reports and quotes about the public-private partnership that has made the system such a success.

Higginsville, S.C. Farmer: Crop insurance policies are crucial for farmers

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As someone who has spent more than four decades managing a fourth-generation farm and the past 10 years building my family’s crop insurance agency, I believe I have valuable perspective worth sharing regarding how essential today’s Federal crop insurance policies are to America’s farmers and consumers.

Specifically, I would like to explain how essential the harvest price option has become to the modern agricultural producer. The harvest price option insures a crop at its actual harvest-time value.

Think of it like a homeowner’s insurance policy: If your home appreciates in value after you purchase it, you are protected at the home’s current value if it burns down and you have to rebuild.

Unfortunately for agriculture, this policy that makes rebuilding possible has come under fire from those who misunderstand the unique risks for farmers who are constantly exposed to the ravages of Mother Nature.

It is important to note that farmers pay an additional premium for this type of protection, and it supports their risk management in two distinct ways. First, a farmer often prices a large percentage of his anticipated — or before-harvest — crop using forward price contracts with a local elevator.

If a natural disaster strikes and causes production to fall short of the quantity sold, the farmer would need to purchase enough of the crop to fulfill his contractual obligation. In the meantime, the price of the commodity likely will have increased because of the overall drop in production after the disaster.

Consequently, the remaining crop available to purchase is priced much higher than what was covered under the spring contract.

By purchasing the harvest price option as part of his crop insurance policy, the farmer is able to meet his contractual obligations either by buying grain to deliver under the contract or by making a financial settlement with the purchaser.

A second way the harvest price option becomes essential to producers is if the grain being produced is intended to support the farm’s future animal feed needs. If a natural disaster destroys the grain that is to be harvested, then the producer will be forced to purchase feed instead. If there is a widespread short crop, the feed costs will be much higher.

With the harvest price option on the producer’s crop insurance policy, the farmer will be paid the actual harvest price on his lost production. This, in turn, allows him to purchase the feed needs for his livestock operation and still maintain a viable business.

In fact, allowing farmers to maintain a viable business when the unexpected happens is what crop insurance is all about. The beneficiary is not just the farmer, but also the American consumer.

Crop insurance enables farm families such as mine to pick up the pieces after a disaster and continue to produce food and fiber without significant price increases or supply shortages for consumers.

The fact that Americans spend less of their disposable income on food than any other country speaks volumes as to how critical it is that farmers have risk-management tools such as crop insurance.

The critics would do well to try to understand the link between a viable crop insurance program and an affordable, stable food supply before proposing measures that would destroy it — in other words, before biting the hand that feeds them.

Gary Riekhof is a farmer and crop insurance agent from Higginsville.  This op-ed appeared in The Columbia Tribune Saturday, June 6, 2015. 

USDA Under Secretary Scuse on Crop Insurance: “I wouldn’t dream of farming without it.”

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scusemichaelUSDA’s under secretary for Farm and Foreign Ag Services, Michael Scuse, openly admits he didn’t always buy crop insurance on his Delaware farm back in the 1980s and 90s.   But today, he wouldn’t consider farming without it.

“Back in the 1980s and 90s, you couldn’t give me crop insurance. It didn’t work on my farm,” said Scuse during a recent meeting with participants of the Illinois Farm Bureau Marketers trip to Washington that appeared in Farm Week Now.

Scuse noted that “since (USDA) changed the program and developed revenue (protection) products, I wouldn’t dream of farming without it.”

Of course, in response to producer demands and the 2014 Farm Bill, new crop insurance products are being tested to come on the market nearly every year and USDA continues to refine crop insurance programs through the Risk Management Agency (RMA).  ”We continue to get requests to include more crops and to make it more user-friendly,” he said.

Given the increased volatility of the weather that we’ve seen over the last decade, those new products will be critical for farmers and ranchers alike.  With input costs rising, crop prices falling and the elimination of direct payments to farmers, crop insurance is by far the most important risk management tool in virtually any farmers’ tool belt.

RMA Associate Administrator Tim Gannon told the group that the crop insurance program has come under public scrutiny in recent years as the Federal government looks to control spending.  That is why farmers need to defend the program and ensure that consumers and members of Congress understand why crop insurance is critical to the overall well being of America’s rural sector.  “Your ability to tell the story of what crop insurance represents will be critical,” he said.

Gannon pointed out that crop insurance saved many farmers after the drought of 2012. “It’s not just a handout,” he noted.

Illinois farmer Martin Andris explained in a 2012 interview during the heart of the historic drought that in the past when drought stuck the area, he wasn’t protected by crop insurance.  “Those recoveries were tough.  When you struggle to have a crop in a given year, then you’re taking two to three years to recover…” he said.  “My goodness, it is so much easier to sleep at night when you have the protection of insurance,” he added.

Hollis, Oklahoma farmer: Affordable crop insurance is critical

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I started farming and ranching with my father and grandfather in southwest Oklahoma and the Texas panhandle 40 years ago, and I am the fourth generation to farm cotton, peanuts, wheat, corn, milo and cattle on our family’s land.

I was 17 when I started farming on my own, and although I have four decades of experience under my belt, the many issues we face today on the family farm — worked by me, my son, my brother-in-law and my son-in-law — are no less challenging than they were when I began. In most careers, things get easier as you move along. In farming, since the weather and prices are so unpredictable, it really never gets easier.

With few risk management tools available in the early days, it could take years to recover from a hailstorm, an early freeze or any of the many other natural perils that could be thrown at you. When I first learned of crop insurance, I didn’t purchase it because premiums were unaffordable and margins were too slim to afford it. Thankfully, Congress made crop insurance more available and affordable — by partially discounting the premium — and now I wouldn’t farm without it.

Since the passage of the 2014 Farm Bill, crop insurance is the best tool farmers have to manage risks and revenue. It’s not cheap, but it is something that we budget for annually and can’t imagine not having.

The key to crop insurance’s success has been its affordability, its availability and its viability. Last year, farmers spent nearly $4 billion on crop insurance policies that protected 90 percent of planted cropland in the United States. I’d bet that many of the farmers in our area wouldn’t be surviving the current drought — which started in 2011 — if it wasn’t for crop insurance.

Despite the fact that agriculture’s safety net programs took a huge cut in the last farm bill, some in Congress seem to think we need to give more. I wonder if some of those people have any idea where their food and clothes come from or what it takes to get it from the farm to their plate or closet.

It seems almost daily that someone in Congress is proposing a bill to cut the premium support on crop insurance. It would not serve anyone to cut these risk management tools to farmers, as they allow farmers to concentrate on producing higher-yielding, better-quality crops that reduce the costs to the consumer.

Crop insurance is not a gift but insurance, just like homeowner’s insurance, that farmers buy. And like homeowner’s insurance, we don’t collect a dime without a verifiable loss and paying a deductible. Without crop insurance, many farmers couldn’t get financed and it would be almost impossible for a beginning farmer to get started.

Crop insurance is critical in meeting these challenges, and guarantees the American consumer a safe, affordable supply of quality food and fiber that is unsurpassed anywhere in the world.

Kelly Horton lives in Hollis, Oklahoma.  This op-ed appeared in The Oklahoman on May 17, 2015.

National Peach Council President Says Young Farmers Need Viable Crop Insurance

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chalmers-cropped-297x300National Peach Council President Chalmers Carr said that he wouldn’t be in business today if it wasn’t for crop insurance.  “I do not believe that you would find very many willing lenders to participate in loaning to farming operations without crop insurance being a part of it,” said Carr in a nationally distributed National Association of Farm Broadcasters interview.

Carr hailed the changes in the 2014 Farm Bill that made crop insurance the centerpiece of the farm safety net.  “Mother Nature comes in and deals you a blow that doesn’t happen but every so often, and then you do need insurance to protect yourself,” he said.  “It’s no different than why you carry insurance on your automobile and homeowners insurance and everything else.”

Carr noted that the more farmers who purchase crop insurance the better, since it is less likely that a disaster in one area will affect the overall health and financial viability of the program.  He says that by expanding the program’s reach, crop insurance becomes more sustainable and viable.  “The problem is that young people simply don’t have the money and banks won’t lend money without crop insurance or some kind of support behind them,” he said.  “We have to have a viable crop insurance program to help these young farmers get in and get started in business,” he said.

Carr said that looking ahead, one of the biggest challenges facing farmers are discussions about capping the premium discount crop insurance.  “I would be out of business tomorrow, my 600 employees would be out of business and my bankers would run away from the industry,” he said. “You would see a major change in the Ag lending institutions if somebody started messing with crop insurance.”

CROP INSURANCE IN ACTION: John Michael Pillow, Yazoo City, Mississippi

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John Michael Pillow is a fourth generation Mississippi farmer and spent the first part of his career managing his family’s farm.  In 2011, Pillow decided to strike out on his own and become a full-time farmer.

“Most of the 3,500 acres I planted that year were in corn, which is a crop whereby most of the cost is right up front,” he says.  By the time the entire field was planted, Pillow estimates he had not only his family’s future invested in the crop, but also  $2.5 million that he had borrowed from the bank to put the crop in.

“2011 started out exceptionally dry for us, and by mid-summer, the crop was already starting to show the signs of drought stress,” said Pillow.  But then Pillow’s luck changed drastically as the drought was broken by rain.  And then more rain, and then some more rain.

And although Pillow’s farm and homestead are protected by a sophisticated levee system, the levees simply weren’t high enough to accommodate the unending downpours.   “Before I knew it, the Yazoo River was knocking on my front door.”

At that point, Pillow suddenly realized the value of crop insurance, and why it was worth buying every year.  “Crop insurance, for me, not only proved to be essential, it’s the reason I’m in business today,” he said.

Just as luck would have it, Pillow’s crop insurance agent had approached him at the beginning of the crop year prior to planting to discuss various high-loss scenarios with him.  “Out of the blue, my crop insurance agent floated the worst-case scenario by me about how well I’d handle a crop loss of 80 to 85 percent,” recalls Pillow.  “I told him that a loss that high was simply inconceivable, that it would never happen.”

But Pillow notes that, given the fact that this was his first year of farming on his own and that he would require a $2.5 million operating loan from the local bank to put his crop in the ground, he decided the prudent thing to do would be to plan for the worst.

“I had to cut a check in excess of $60,000 in February to purchase the level of coverage the agent suggested for a level of loss that I didn’t really believe was possible,” he recalls.

And then it happened.  Roughly three months after writing that check, the Yazoo River had spilled over its banks and most of Pillow’s farm was underwater.

“I lost 80 to 85 percent of my crop that year,” said Pillow.  “And to add insult to injury, after the waters receded, although most of the corn was completely washed away, the corn that was left had been severely damaged by drought,” he said.

Pillow said that just like car insurance, crop insurance gives you a degree of stability in times of disaster.  “If you wreck your car, the insurance will replace it and you can still go to work the next day,” he says.  “Why would you not have insurance on your food source, since it’s the most important thing we have?”

Pillow notes that through the whole process, his crop insurance agent and company were by his side.  “When I found out that we were going to flood, the first call I made was to my crop insurance agent,” said Pillow.  “He was very reassuring that it would be okay.”

Pillow said that when the flood was at its height, his agent, the adjuster and the supervisor were all on his farm at some point surveying the damage and assuring him that his indemnity check would be on the way so he could bounce back from this.

“Needless to say, I would be doing something else other than what I love besides farming, and I would be repaying the bank for the $2.5 million I borrowed to put the crop in for the rest of my life,” said Pillow.  “In fact, me, my wife and my kids would have been paying the bank back for a generation or more,” he added.

Why Farmers Need Crop Insurance

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Matt HuieI always knew I was going to be a farmer. I grew up learning from my grandfather who turned me loose and gave me a lot of responsibility on his farm from a young age. I was driving machinery by the time I was 10-years-old and running my own harvest crew by the time I was 14.

When I was in school, I entertained being a veterinarian and farming on the side mainly because people told me it was a tough life and I wouldn’t be able to make a living.

That kind of talk only made me more determined, so when I came home from college I started farming full-time despite the fact that I barely had a dollar to my name and farming is a capital-intensive business.

I remember the first time I went to borrow money, my banker asked me right off if

I had crop insurance and how much was the coverage. I was prepared to answer those questions as crop insurance was then, and remains today, my primary risk management tool. I wouldn’t think of trying to grow a crop without it.

It’s essential — especially for young farmers, like I was at the time, just starting an operation.

It enables farmers to get financing and also enables them to survive a major catastrophic weather event.

Young farmers are particularly vulnerable to such risks because they are more leveraged than more established farmers. They can’t afford a major hit in their finances or a year without any income.

Just look at my state of Texas where we have suffered a historic drought for the last five years. 2012 and 2013 were particularly bad.

Without crop insurance, this sustained drought would have wiped out an entire generation of farmers. They would not have had the means to make it to another year without something to at least help cover part of the losses. That’s why it is critical that crop insurance remain affordable and widely available.

Thankfully the 2014 Farm Bill strengthened crop insurance and added provisions to help beginning farmers. But, the critics of farm policy, including some lawmakers in Congress, never seem to rest and are already clamoring once again for cuts.

They would be wise to take note of an alarming trend that puts the average age of a U.S. farmer at 58. Moreover, in 2012, the number of beginning farmers – those operating fewer than 10 years – was down 20 percent from 2007.

My desire to farm at such a young age is the exception, not the rule. Many young people can’t stomach the risk that is involved and have no desire to try.

Cuts to the farm safety net only make an inherently risky business, riskier. The expense of raising crops, the perils of weather-related disasters, and the low returns on investment, are enough to make anyone run in the other, more secure direction.

Now is not the time to create barriers at the starting point of farming and ranching. Now is the time to give certainty to young people with farm policy they can afford and count on.

Matt Huie farms cotton, corn, sorghum, and livestock in Southeast Texas near Corpus Christi.  This op-ed appeared in the Corpus Christi Caller-Times on May 17, 2015. 

Farmers Help Fund $14 Billion of the Farm Safety Net in 2014

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Farmers who filed crop insurance claims in 2014 collectively shouldered approximately $10 billion in deductible losses before collecting any payments, according to new data unveiled recently by the National Crop Insurance Services (NCIS).

When combined with the $3.9 billion spent to buy insurance coverage in 2014, farmers absorbed at least $14 billion in out-of-pocket costs, which is well in excess of the $9 billion in insurance indemnity payments that flowed to rural America.

NCIS President Tom Zacharias said this is significant for several reasons.  “First, it shows that U.S. farmers are actively participating in the funding of their own safety net and minimizing taxpayer risk exposure,” he explained. “It also proves that crop insurance is working as designed by helping farmers recover – not profit – from disaster.”

This was even the case after the historic 2012 drought, when farmers shouldered $17 billion in deductible losses and premium payments and received $17 billion in insurance payments.

Because farmers have substantial “skin in the game,” crop insurance helps reduce the cost of U.S. farm policy while discouraging risky behavior that may otherwise occur if taxpayers picked up 100 percent of the tab.

Zacharias said that growers favor the current system over past farm policies because crop insurance can be tailored to a farm’s unique characteristics and because efficient private companies administer crop insurance and speed relief when it is needed most.

The newly released deductible calculation completed the 2014 crop insurance picture. Other relevant statistics were detailed in the May edition of NCIS’s Crop Insurance TODAY magazine and included:

  • 1.21 million policies were sold, protecting nearly $110 billion in crop value.
  • More than 294 million acres were insured, with a record 83.5 percent of those acres being insured at high coverage levels.
  • Private insurance companies successfully and efficiently processed claims on more than 441,000 policies.

NCIS noted that the $10 billion in deductible losses only reflects losses for crops on which an insurance claim was filed. Farmers who shouldered smaller losses but did not file a claim are not included in the calculation.

 

CROP INSURANCE IN ACTION: Craig Corbett, Soda Springs, Idaho

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Craig Corbett farms malt and seed barley, along with some wheat on roughly 2,800 acres in Soda Springs, Idaho. Corbett has been farming for more than 30 years and loves what he does for a living. “It’s challenging, it seems like something new pops up every day, and it’s great being in a production-oriented business like farming,” Corbett said.

Corbett explained that when crop insurance first came out, it didn’t work well and many farmers opted not to purchase it.  He said that many commodity organizations and the crop insurance industry have worked over the years with USDA to produce crop insurance products that are effective for producers in different parts of the country, growing vastly different crops.

“It’s hard to have a program that works for one area – like Idaho—while also working for different crops in different areas of the country as well,” Corbett said.   “And the fact that modern crop insurance can do that is a big, big plus.”

Corbett added that while he’s never had a “crop catastrophe,” he has used his policies on a number of occasions, like after going through a really bad hail storm.  “Crop insurance is never going to make you money, but it can keep you from losing your shirt,” he said.

He noted that despite the fact he spends more than $20,000 annually purchasing crop insurance, on most years he doesn’t file a claim. “And every one of those years it was money well spent,” he said.

Corbett said that while he can protect himself against price fluctuations with marketing tools, “the one thing that we can’t have is nothing to sell.”

“If I don’t have anything to market, then I’m done,” he said.   “So if you’re a producer, crop insurance is where you get the most protection for your buck.”

The 2014 Farm Bill made crop insurance the centerpiece of farmers’ risk management tools, and incorporated changes that strengthened crop insurance.  “If the Farm Bill was going to be changed, it needed to change in the direction of helping farmers better manage risk, and the new Farm Bill certainly moved in that direction,” Corbett added.

 

Crop insurance a key for producers

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My husband and I have been farming in Southeastern Colorado for more than 40 years, and during that time it’s safe to say there have been a lot of changes not only in farming practices, but also in farm policy.

The biggest policy change through the years has been the affordability and availability of crop insurance.

When we first started farming, crop insurance was not an option because we couldn’t afford it.

It wasn’t until Congress made reforms to the program a couple of decades ago that we were able to participate. Additional reforms through the years have made crop insurance more widely available for a variety of crops, regardless of farm size or method of production.

It is still an expensive part of the operation, but it is a necessary part because it provides us with stability — something we can count on. This is helpful not only when we need to show our lender at the bank what our estimated income will be, but also for our own peace of mind.

You have to realize that out here, we can have a beautiful crop and phenomenal yields one year and then get wiped out by a hailstorm or drought the next.

For the last three years, the ongoing drought and the late spring freezes have dogged our crops. With crop insurance, we have been able to level out the highs and lows so we can make it to another year.

The enactment of the 2014 Farm Bill made crop insurance the centerpiece of the farm safety net — and for good reason. It is an effective risk-management tool for not only farmers, but also for taxpayers.

Gone are the days of large, unbudgeted disaster bills aimed at helping farmers when natural disasters strike. Now, because of crop insurance, everyone — policymakers, farmers and bankers — can plan and budget for those disasters.

Recently, there has been talk in Washington about yet again trying to make changes to crop insurance. This is arising just one year after the Farm Bill was enacted.

Specifically, there have been discussions about cutting the premium support that farmers receive for purchasing crop insurance. This does a disservice to everyone.

If such proposals succeed, it would only serve to increase the costs to farmers and undermine their ability to manage risk. As my husband and I can attest, premium support has helped us to afford crop insurance, which, in turn, has helped our overall farming operation.

Each new farm bill ushers in new changes to farm policy. We’ve experienced those changes firsthand, but the one part that should remain constant going forward is crop insurance. It is the key to a steady, safe food production system in the U.S. The beneficiaries of crop insurance are not just farmers but also consumers.

Cathy Scherler is the president of the Colorado chapter of Women Involved in Farm Economics (WIFE), a national non-partisan organization committed to improving the profitability and production of the agricultural industry. She and her husband grow wheat, grain sorghum, sunflowers and corn on their farm in the Eastern Plains. This op-ed appeared in the Pueblo Chieftan on April 11, 2015.

While Many Parts of the Country are Waterlogged, California Remains Locked in Drought

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A quick look at the U.S. Drought monitor says it all.  For the vast majority of the country, the years-long drought has been all but eliminated.  A year ago, 13 percent of the contiguous U.S. was locked in “extreme” or “exceptional” drought, the two most severe stages.  All of this area was west of the Mississippi, and concentrated most severely in the southern plains states of Texas and Oklahoma and then westward to California.

U.S. drought mapWith the extreme shift in the weather pattern experienced this crop year, the two worst levels of drought have been all but eliminated in the entire contiguous U.S., with the exceptions of California and Nevada.

California remains in desperate shape, with fully 70 percent of the state locked in extreme or exceptional drought, with the entire state remaining in some level of precipitation deficiency.  California farmers are scrambling to submit plans to reduce their water consumption, hoping to stave off deeper, mandatory cuts that could come down pipeline from the Governor.

To accomplish this, farmers are opting to plant less water intensive crops and some have decided to leave fields unplanted altogether.  The Golden state’s cities and businesses have been ordered to reduce their water consumption already by 25 percent.

Although California grows roughly half of the vegetables, nuts and fruits consumed in the U.S., the drought has yet to send food prices skyrocketing since farmers in other regions are making up the difference.

Crop Insurance in Action: Bill Christ, Metamora, Illinois

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For those who have ever visited America’s Corn Belt, they know that the region has soil and climatic conditions for growing corn and soybeans.   “And our farmers are hardworking, committed and driven to produce record crops every year,” notes farmer and crop insurance agent Bill Christ.

In the past, when drought would occasionally come, “many hardworking farmers watched their crops wither and their dreams blow away with the dust, because they didn’t have a backup plan in place in case something like this happened,” said Christ.

Today, most farmers purchase crop insurance, which ensures that when drought or flood or early freeze visits our region, farmers have some level of protection to recoup the tens of thousands of dollars they’ve spent trying to raise a crop.

“The droughts in the 1980s taught the area farmers that if they relied on disaster payments and subsidized federal loans to bounce back from natural disasters, they were going to eventually fall on their faces,” he said.   On the other hand, crop insurance, which today protects 94 percent of planted cropland in the U.S, combines the resources of the federal government with the ingenuity and entrepreneurship of the private sector.

Crop insurance allows individual farmers to purchase the coverage they need, tailored to their farms, their financial standing and their tolerance to risk.  “Crop insurance has become indispensable because farming is so expensive that banks are afraid to make production loans without a crop insurance policy as collateral,” said Christ.   “That way, if the crop fails, the bank, and the farmer, have something to fall back on.”

Christ says he’ll never forget the drought of 2012.   “Farmers calmly walked their fields, yet inside, we all knew we were heading for big trouble,” he said.  Well before the harvest, the corn was burning up and the plants themselves were stunted.   In some parts of the state, corn crops were condemned but the plants were so small they could hardly be chopped for silage.

But unlike previous droughts I had witnessed, there was a sense of optimism in the farmers I knew.  “They were more upbeat and positive because they had adequate protection and that they could bounce back,” he said.  “And guess what?  Everyone bounced back in 2013 and produced an enormous harvest for the nation.”

In 2014, Illinois farmers spent $302 million out to purchase 124,000 crop insurance policies protecting 19 million acres valued at nearly $11 billion.

Christ notes that we live in one of the richest nations in the world and virtually anything you want to eat is right at your fingertips.  “But that doesn’t occur by accident,” he says.  “It’s possible due to good farm policies and hardworking farmers, who together produce the cheapest and most reliable food in the world.”

Keep Crop Insurance Affordable

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Living through the drought of 2012 as an Illinois farmer gave me a whole new appreciation for risk management tools.  There are things that farmers can do to try and deal with the curve balls served up by Mother Nature and with the ups and downs of market swings, but many things – like a massive drought or a heat wave – are completely out of our control.

If this drought would have happened a decade before, it would have left many farmers completely devastated and on the verge of bankruptcy, with nowhere to turn but to Congress for an expensive, taxpayer-funded bailout package.   In fact, past disasters have cost taxpayers tens of billions of dollars since 1979.

What was different about the drought of 2012, which was the worst natural disaster to hit this state in my lifetime, is that the vast majority of the state’s farmers had purchased the best risk management tool around:  crop insurance.  In fact, farmers spent well over $4 billion out of their own back pockets in 2012 purchasing the protection and peace of mind of crop insurance, which meant when disaster struck, they had a backup plan in hand.

The recent Farm Bill took three long years to pass and cut $23 billion out of farm programs.   But for those who for whatever reason are always looking to criticize farm policy that still wasn’t enough.   Now they have their sights set again on crop insurance, and are pushing forth ideas to make it more expensive for farmers to purchase.

What these misguided groups and members of congress seem to miss is that the reason why crop insurance has become the best risk management tool for farmers is that it’s affordable and reliable.  In fact, 90 percent of planted cropland was protected by crop insurance in 2014.  It’s this level of protection – made possible by crop insurance’s affordability – that keeps expensive disaster bills from hitting taxpayers when Mother Nature strikes.

Unlike direct payments in the past, crop insurance is not a handout. In fact, when farmers purchase crop insurance, they receive a bill, not a check, and only receive a payment if they incur a loss, and only after paying a deductible Just like homeowners insurance, when farmers buy crop insurance, they do so hoping that they will never have to use it.  And many of them rarely do.  In fact, since 2000, farmers have paid out more than $38 billion purchasing the protection of crop insurance, and in most years, they don’t collect a dime.

If crop insurance becomes more costly, then farmers simply won’t be able to afford it, and they will have nowhere to turn but the Federal government when disaster strikes.  This is a lesson we learned over and over again before crop insurance became widely available and affordable.

Crop insurance works so well and has been embraced so readily by farmers across the country because it’s a public private partnership that combines the best of the public and private sectors.  Crop insurance premiums are partially discounted by the government to ensure affordability and the policies are sold and serviced by the private sector.  And when disaster strikes, an indemnity check arrives in weeks, not years.

Like any other public policy, crop insurance isn’t perfect, and I’m sure Congress will do some fine-tuning to the program in the next Farm Bill just like they did in this one.  But the most important thing to keep in mind is that farmers are not only enormous producers, they are enormous consumers as well.  And with crop insurance policies in hand, they can bounce back from natural disaster or huge market fluctuations and continue to be the engines that drive the economy of rural America.

Keith Mussman is president of the Kankakee County Farm Bureau.  This op-ed appeared in the Champaign News-Gazette on April 27, 2015.

Collin Peterson: Crop Insurance Key to Family Farmers, Young Farmers

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Ranking Member of the House Agriculture Committee Collin Peterson (D-MN) warns that one of the biggest dangers to crop insurance is criticism from groups who are trying to undermine the important risk management tool through the appropriations process before the entire Farm Bill is even fully enacted.  “The danger is that some of the people who are making noise about this, if they get their way, they will destroy crop insurance,” said Peters on a recent Agri-Pulse Open Mic interview with Jeff Nalley. “That’s the danger.”

Peterson notes that he has already met with crop insurance companies that are considering pulling out of the program altogether because of the ongoing attacks focusing on profit margins and the premium support offered to farmers.  “I had the underwriters and reinsurance companies in my office asking me questions about where this thing is going,” and explaining that their board of directors are questioning if the company should stay in the business or not.

Peterson explains that what is most concerning is that these questions are coming from the only companies in the business who are offering national coverage.  “If they get payment limitations on big farmers, that will bring this thing down,” he said.  Peterson added that Congress has probably already pushed the participating crop insurance companies farther than they should have with the Standard Reinsurance Agreement (SRA) and the 2008 Farm Bill.  “Hopefully we can explain to people as we fight this fight just how precarious this situation is,” he says.

Peterson says that in a worst-case scenario, we could end up with a situation where entire states can no longer get crop insurance coverage.  “You could have a situation where, for example, North Dakota, for example, would not be able to get insurance,” he said.   “Crop insurance is what keeps family agriculture and smaller farmers going,” noted Peterson.  “It’s so expensive to farm, the banker isn’t going to finance you if you don’t have a way to pay him back, which is what crop insurance does.”

Peterson notes that crop insurance is critical to the future of family farming in the U.S. “The most important thing to keeping family farms and getting young people into agriculture is crop insurance,” he adds.

Listen to the entire interview here.

Former USDA Chief Economist Discusses 40-Year Career, Farm Policy in New Videos

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Renowned agricultural economist Dr. Keith Collins reflects on his distinguished career and the future of farm policy in a series of videos released recently by National Crop Insurance Services (NCIS).

Collins spent 32 years in federal service, where he served as the U.S. Department of Agriculture’s (USDA) chief economist to four secretaries of agriculture and as chairman of the board of the Federal Crop Insurance Corporation for seven years.  After leaving USDA in 2008, he became a consultant to NCIS.

Collins recorded the three videos as one of his last projects before he officially retired from NCIS on March 31. The videos attest to Collins’ nearly 40 years of farm policy experience, during which time he was a witness at 80 congressional hearings; received five Presidential Rank Awards for Distinguished or Meritorious Executive and was elected a fellow of the Agricultural  & Applied Economics Association.  “I have had the best of all possible careers over that period of time,” he said. “I owe a great deal of gratitude to the American farmer for what they have done, for the food that they produced, the way they produced it.”

Collins urged new administrations and members of Congress to recall the farm policies of the past and why decisions were made to make crop insurance the centerpiece of today’s farm safety net. “Look at the program that we have today, look at where it came from, look at how it evolved, how it emerged as the best of many different programs that were tried over the years,” he said.  “And the success of the program has hinged on it being available to producers widely across America, being affordable for producers large and small, and having a private-sector [component] that is financially viable.”

Collins concluded saying, “Looking to the future, we want to prevent anything that would undo the success of this program.”

  • The first video is Collins’ testimonial, chronicling why Congress turned to crop insurance as the foundation of the farm safety net, and it is available here.
  • The second video tracks farm policy’s journey from complete government control to being more market oriented and driven by the private sector.  It can be viewed here.
  • Finally, Collins discusses why affordability, availability and viability of crop insurance are so crucial in the third recording, which can be seen here.

It’s up to us to explain the importance of crop insurance

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It was 2010 and I was expecting to harvest my best crop. I had done everything right and the weather had been kind. Or so I thought. Then on a late October night, it hailed for six hours and what was anticipated to be my best crop year turned into nothing. But the worst of it was yet to come. It stopped raining. It stopped for 336 days straight. It kicked off what would be the worst drought since the 1950s. The conditions would improve slightly, but it’s not an exaggeration to say that for the last five years, my part of the world—West Texas—has essentially been on fire.

Mother Nature is the toughest, most unpredictable boss. Farmers are resilient and they adapt, but a safety net is crucial to their survival. And, it’s not a safety net if it’s not affordable.

That’s what today’s crop insurance offers farmers. A safety net that is both affordable and widely available. It’s what’s helped me make it to the next year.

That hasn’t always been the case. When crop insurance got its start in the 1930s, it was a poorly run government program. It hobbled along through the 60s and 70s, but the premiums were too high so the participation was low with limited available coverage. Farmers mainly relied on costly ad hoc disaster assistance when natural disasters wiped out their crops.

It was so ineffective that the Secretary of Agriculture, Bob Bergland, told Congress in 1977 that disaster programs “are for the most part…a disaster.” This gave birth to the Federal Crop Insurance Act of 1980 that created a successful public-private partnership that remains today. Since then there have been other pieces of legislation along the way that have made additional improvements to the delivery and mechanics of crop insurance with the most recent being the 2014 farm bill.

Sadly, there are some who don’t know or understand the history and improvements that have taken place through the years. Meanwhile, there are others who are bent on attacking farm policy regardless.

I was reminded of this on a recent visit to Washington, D.C. where I met with lawmakers and staff on behalf of producers across the country. Each time I visit I am struck by how important outreach is to ensure agriculture remains successful in this country and that crop insurance remains a viable, affordable and widely available safety net for farmers and ranchers.

I tend to walk away both encouraged and discouraged by my visits. I am encouraged because there are some who understand the challenges that we face and discouraged because there is always more to be done. The battle never ends, and we need more voices in support of American agriculture.

Our form of government requires participation. When we don’t show up and tell our story then, without a doubt, someone who doesn’t understand or care about production agriculture and the importance of crop insurance will fill the void.

We’ve each sat in the tractor cab or with our neighbors in the coffee shop and talked to ourselves about how to make things better, but that’s not the way to drive real change in Washington or anywhere else. Sometimes you have to get off the tractor and reach out beyond those circles in your own community.

We can’t assume policymakers understand the anxiety we feel when we’re days away from harvesting a good crop and it’s destroyed in a matter of minutes by something beyond our control. We can’t assume policymakers know the one thing that enables us to start again is crop insurance. It’s up to us to tell them.

Wade Cowan is the president of the American Soybean Association. He farms soybeans, guar, cotton, wheat and grain sorghum in West Texas.  This op-ed appeared in the High Plains Journal on April 6, 2015.

Why Farmers Need This Program

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I always knew I was going to be a farmer.  I grew up learning from my grandfather who turned me loose and gave me a lot of responsibility on his farm from a young age.  I was driving machinery by the time I was 10 years old and running my own harvest crew by the time I was 14.

When I was in school, I entertained being a veterinarian and farming on the side mainly because people told me it was a tough life and I wouldn’t be able to make a living.

That kind of talk only made me more determined, so when I came home from college I started farming full time despite the fact that I barely had a dollar to my name and farming is a capital-intensive business.

I remember the first time I went to borrow money, my banker asked me right off if I had crop insurance and how much was the coverage. I was prepared to answer those questions as crop insurance was then and remains today my primary risk management tool. I wouldn’t think of trying to grow a crop without it.

It’s essential — especially for young farmers, like I was at the time, just starting an operation.

It enables farmers to get financing and also enables them to survive a major catastrophic weather event.

Young farmers are particularly vulnerable to such risks because they are more leveraged than more established farmers. They can’t afford a major hit in their finances or a year without any income.

Just look at my state of Texas where we have suffered a historic drought for the last five years. 2012 and 2013 were particularly bad.

Without crop insurance, this sustained drought would have wiped out an entire generation of farmers. They would not have had the means to make it to another year without something to at least help cover part of the losses.

That’s why it is critical that crop insurance remain affordable and widely available. Thankfully the 2014 Farm Bill strengthened crop insurance and added provisions to help beginning farmers. But, the critics of farm policy, including some lawmakers in Congress, never seem to rest and are already clamoring once again for cuts.

They would be wise to take note of an alarming trend that puts the average age of a U.S. farmer at 58. Moreover, in 2012, the number of beginning farmers – those operating fewer than 10 years – was down 20 percent from 2007.

My desire to farm at such a young age is the exception, not the rule. Many young people can’t stomach the risk that is involved and have no desire to try.

Cuts to the farm safety net only make an inherently risky business, riskier. The expense of raising crops, the perils of weather-related disasters, and the low returns on investment, are enough to make anyone run in the other, more secure direction.

Now is not the time to create barriers at the starting point of farming and ranching. Now is the time to give certainty to young people with farm policy they can afford and count on.

Matt Huie farms cotton, corn, sorghum, and livestock in Southeast Texas near Corpus Christi.

NCIS President Discusses the Important Role of Crop Insurance

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NCIS President Tom Zacharias discussed the growing role of crop insurance as the primary risk management tool for farmers in a recent radio interview with Courtnay Doyle of Dignity Farm Network in southwestern Minnesota.  “The 2014 Farm Bill solidified crop insurance as the primary tool for farmers in dealing with production and price swings,” said Zacharias.

Zacharias noted that farmers purchase crop insurance to protect their crops from both volatile weather conditions and uncertain market conditions, which can fluctuate daily.  “It gives farmers and lenders a peace of mind and ensures financial stability, which is important in the agricultural sector,” he said.

He explained that multi-peril crop insurance protects farmers from a whole host of natural disasters, including hail, freeze, drought, disease and loss of revenue due to drops in prices.  “There are roughly 128 crops covered by crop insurance,” he said.

Zacharias also pointed out that in order to enjoy the protection of crop insurance, farmers must first purchase policies.  “Farmers spend about $4 billion each year to purchase crop insurance.  This means that they have significant skin in the game, and they assume a good deal of the risk as well,” he said.

He also pointed out that in addition to paying premiums, farmers have deductibles on these policies ranging from 15 to 35 percent.  “So when a farmer receives an indemnity, it’s after this deductible has been met and the premium has been paid,” he said.

Crop Insurers’ Returns In Question

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Financial returns for crop insurers have fallen nearly 60 percent below expectations since 2011, according to the National Crop Insurance Services (NCIS).  The Standard Reinsurance Agreement — the business contract between the federal government and private-sector insurers that went into effect in 2011 — targeted average returns on retained premium of 14.5 percent.  Returns on retained premium have averaged only six percent over the four-year period.

And because these calculations only measure gross revenue, not net profit, the actual financial pain has been far greater, said NCIS Chairman Tim Weber. When expenses are subtracted from gross revenue, average net profit since 2011 has been less than one percent, with the industry experiencing negative returns in 2012.

“This falls well short of the averages for other lines of property and casualty insurance,” Weber noted during a recent speech at the industry’s annual convention.

Weber explained that unexpected premium reductions implemented by the U.S. Department of Agriculture (USDA) in 2012, $600 million a year in reduced funding under the current SRA, increased regulatory burdens, falling crop prices, and bad weather have caused the poor financial performance.

The worst year, 2012, saw companies absorb $1.3 billion in underwriting losses when premiums collected failed to cover indemnities paid out during the record drought. “Companies need to make a reasonable return on their investment to stay in business…and we cannot do it for free, or worse yet, a negative return,” Weber said.

Crop insurers at the convention expressed disappointment in recent remarks by the Agriculture Secretary, who misinformed reporters about industry returns while advocating for additional funding cuts.

“One of those reforms would be to take a look at what the average rate of return is on crop insurance.  Today it’s roughly 14 [to] 15 percent on average of return on investment,” Secretary Tom Vilsack said during an interview with Politico.

“The Secretary is pointing to revenue projected by the USDA, not what has actually materialized in the marketplace,” noted Tom Zacharias, president of NCIS.

Give Crop Insurance a Chance to Work

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A year after the farm bill was enacted the debate over crop insurance is brewing again. As cost estimates grow for the 2014 farm bill’s commodity program, several members of Congress are calling for program cuts.

These congressmen seem to have forgotten that while the farm bill was being debated in 2012, Illinois was at the center of the most devastating drought in recent memory. The only saving grace — for not only farmers, but also for taxpayers — was high participation levels in the crop insurance program. Having purchased crop insurance enabled [Illinois] farmers to survive the $5 billion disaster.

What’s more, following the drought, there wasn’t a single request for ad hoc disaster assistance. Crop insurance indemnities helped Illinois farmers cover a portion of their losses, pay their bills and get a crop in the ground the following spring.

The 2014 farm bill places even greater emphasis on risk management. And just so everyone understands, with crop insurance farmers don’t receive a check, they write a check. In fact, farmers spend about $4 billion each year for crop insurance coverage from private companies with no expectation of anything but a favorable growing season.

We had a chance to change crop insurance during the farm bill debate. And we did change it. For the better.

Now, let’s give crop insurance a chance to work.

Keith Mussman, is president of the Kankakee (Illinois) County Farm Bureau. This op-ed appeared in the Kankakee Daily Journal on March 18, 2015.

Ag Groups Ready to Work Together to Defend Crop Insurance

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Representatives of several Washington, D.C.-based agricultural groups voiced their strong support for crop insurance during the recent annual meeting of the American Association of Crop Insurers and the National Crop Insurance Services.

The session was designed to give crop insurers perspective not only from Capitol Hill, but also from farmers across the country.  “We want crop insurance for all commodities in all states. It’s very clear every commodity wants to have crop insurance,” said American Farm Bureau Federation’s Mary Kay Thatcher.

“Our farming members are by and large very happy with the crop insurance options in front of them,” added Bev Paul of the American Soybean Association.

The message was consistent with a letter that more than 30 groups sent to Congressional committees recently expressing disappointment in the president’s budget proposal that undermined crop insurance. The groups encouraged Congressional leaders to look elsewhere when they prepare their own budget plans.

In the letter, they explained “budget levels currently in place for crop insurance ensure the affordability and availability of risk protection, while maintaining the viability of private-sector delivery.”

Indeed, these three tenets of affordability, availability and viability were mentioned as the key to keeping the crop insurance system working effectively and efficiently. Another takeaway from panelists was the importance of sticking together and building alliances to make sure crop insurers can continue to offer a variety of options to farmers.

“Our focus in the years to come will be defending what we have,” said Robbie Minnich of the National Cotton Council of America.

USDA Proposes Expansion of Crop Insurance to Cover Underserved, Specialty Crops

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The United States Department of Agriculture (USDA) recently proposed to expand certain regulations to increase the availability of crop insurance to many farmers who currently can’t purchase coverage for their crops – including many fruit and vegetable growers – the agency announced recently.

“These improvements will help expand and improve crop insurance to underserved crops,” noted Risk Management Agency Administrator Brandon Willis.  The proposed rule will ease the burden on private submitters while making crop insurance policies for underserved and specialty crop commodities a priority.

Many of the recommended changes addressed provisions of the 2014 Farm Bill that were meant to expand the farm safety net options for modern agricultural practices, a move of significant importance given the elimination of direct payments to farmers.

“We are continuing our work to ensure that a wider variety of producers have access to sound risk management tools to keep themselves protected from disaster,” noted Willis.   USDA’s full announcement can be found here.