Crop Insurance Helps NC Farmers Weather the Ups and Downs

From rags to riches. From feast to famine. From pauper to prince. We’ve all heard the phrases to describe going from one extreme condition to the opposite. But farmers in North Carolina understand this concept first hand. Unfortunately.

In 2011, just about every imaginable weather disaster hit the state. It started with frigid cold, moved on to a sweltering heat wave, interspersed with a historic tornado outbreak and then hurricane flooding.

In 2012, started out with much of the state experiencing a severe drought, but thankfully Mother Nature eventually dealt a kinder hand to farmers in the Tar Heel state than most of the rest of the county, who experienced the worst drought since the Dust Bowl.

This unending rollercoaster of weather extremes underscores the reason why year after year, farmers across the country happily purchase crop insurance to help mitigate the unknowns that are never far from hand. In the past, disasters like these would have triggered large disaster relief bills, much like what was passed after Hurricane Sandy.

Those bills were costly – 42 such bills have cost taxpayers roughly $70 billion since 1989 – and slow in delivery, and dealt with disasters after they happened. Crop insurance policies, by comparison, force farmers to think about their risk management plans before planting. Policies are purchased at the beginning season, and if disaster strikes, it takes a month or less, not a year, for assistance to arrive.

The passage of the Farm Bill in both the House and Senate will mark a new chapter in U.S. farm policy. The days of direct payments to farmers will be gone as well as many of the large commodity support programs. Left in their place is crop insurance, a public-private partnership whereby farmers purchase individual policies that are tailored to their specific needs, and are sold, serviced and delivered by participating companies. As Senate Agriculture Chairwoman Debbie Stabenow pointed out, when a farmer signs up for crop insurance, “the farmer gets a bill, not a check.”

The key to the success of crop insurance is its affordability, thanks to a premium discount from the federal government, combined with its ubiquity, meaning that any farmer who wishes to purchase a policy must be sold one at a price set by the federal government, regardless of that farmer’s risk profile. And unlike the past, taxpayers aren’t stuck footing the bill alone.

Farmers wishing to be protected by crop insurance must purchase it with money out of their own pockets. Since 2000, farmers have spent $38 billion doing just that, protecting crops ranging from corn and soybeans to apples, pears, blueberries and tomatoes.

The reason why crop insurance is so successful is that it is widely purchased, with roughly 90 percent of all planted cropland protected in 2013. And since so many farmers had bountiful harvests in 2013, more than half a million of the farmers who purchased crop insurance never collected an indemnity.

But some crop insurance critics are calling for a major policy change, called means testing. Means testing is a bad idea because it would force many large or highly successful farmers to pay more for their federal crop insurance coverage, which could reduce the amount of insurance they purchase, leaving many acres with inadequate coverage. Fewer acres covered mean more expensive premiums for everyone else, including small and mid-size farmers.

Why? Because if the biggest farmers, who tend to be the least risky, are driven out, the pool of insureds shrinks and thus the risk for those remaining gets larger. For example, if a company selling car insurance excludes the best drivers from their pool of insureds, the only drivers left would be those who are the riskiest, and thus the costliest to insure. This fact would drive up the premiums for all remaining drivers, or in this case, farmers.

Facing extreme conditions is part of farming that will always be with us. But for the sake of the rural economy and the many rural Americans who depend on it, keeping crop insurance robust and widely available is the best thing we can do for both farmers and consumers alike.

William “Midge” Tankard farms corn, wheat, soybeans, sorghum and tobacco and lives in Bath, NC. This op-ed appeared in the Fayetteville Observer on December 4, 2013.