Crop Insurance is Money Well Spent by Farmers

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.