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Congress Looks to Take Another Bite Out of Farmer’s Crop Insurance

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It’s not uncommon for a bank to ask for proof of insurance prior to lending you money. If the car, boat, or home for which you are seeking financing is destroyed, the bank needs some peace of mind that insurance will be there to cover the loss of its investment.

Agricultural loans are no different—except those loans are much larger than the ones most of us take out. And the risks that farm borrowers – particularly small farm borrowers – face every day are much greater than those facing everyday citizens.

Crop insurance has been the best tool to mitigate this extreme risk, which ranges from Mother Nature, to volatile markets, and heavily subsidized foreign competitors.

Better risk management also made it possible to obtain essential capital during the down economy, and the relationship has paid big dividends for rural economies.

The Federal Reserve of Kansas City noted, “In 2010, rural America was at the forefront of the economic recovery.”

But that success story is under attack right now in Washington, as lawmakers target crop insurance for yet another round of funding cuts and new regulatory burdens. The most serious threat comes from an amendment to subject crop insurance participation to a means test.

In other words, insurance benefits would be stripped away from larger, well-established farms and ranches. It seems innocent enough. After all, no taxpayer likes the idea of government dollars being spent on wealthy people when so many others are struggling.

But this amendment holds serious unintended consequences and could wind up harming not only small farmers, but farmers and ranchers of all sizes and income brackets, right along with the local economies they keep afloat.

Think of it this way. If you removed all the safe drivers from the auto insurance pool, or all the homeowners outside of floodplains, house and car insurance wouldn’t be affordable for anyone. That’s because insurance companies have to spread risk and delivery cost out across a diversified customer base to make products more available for all. For every risky policy, you need one with little risk.

If the amendment passes, the farmers left in the insurance pool will have to fork over more for premiums, and even then, their quality and speed of service will likely diminish as insurers wrestle with shrinking profit margins or losses.

Some will argue that the government shouldn’t be involved in crop insurance at all. That’s not realistic.

That would leave America in the same position it was in before we had a vibrant crop insurance system, when costly ad hoc disaster bills came before Congress nearly every year and taxpayers—not private insurers—bore all the risk.

For this reason, the country’s major financial institutions are urging Senators to vote no on all crop insurance amendments that would harm the crop insurance infrastructure.

Damaging the effectiveness and affordability of what’s left of Iowa farmers’ safety net and their most important risk management tool would only worsen the economy as a whole.

Alan Rosendahl is a Senior Vice President at Iowa State Bank and a farmer who resides in Kesley, Iowa.

This op-ed appeared in Agri-News on June 28, 2012

Congress Looks to Take Another Bite Out of Farmer’s Crop Insurance

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It’s not uncommon for a bank to ask for proof of insurance prior to lending you money. If the car, boat, or home for which you are seeking financing is destroyed, the bank needs some peace of mind that insurance will be there to cover the loss of its investment.

Agricultural loans are no different—except those loans are much larger than the ones most of us take out. And the risks that farm borrowers – particularly small farm borrowers – face every day are much greater than those facing everyday citizens.

Crop insurance has been the best tool to mitigate this extreme risk, which ranges from Mother Nature, to volatile markets, and heavily subsidized foreign competitors.

Better risk management also made it possible to obtain essential capital during the down economy, and the relationship has paid big dividends for rural economies.

The Federal Reserve of Kansas City noted, “In 2010, rural America was at the forefront of the economic recovery.”

But that success story is under attack right now in Washington, as lawmakers target crop insurance for yet another round of funding cuts and new regulatory burdens. The most serious threat comes from an amendment to subject crop insurance participation to a means test.

In other words, insurance benefits would be stripped away from larger, well-established farms and ranches. It seems innocent enough. After all, no taxpayer likes the idea of government dollars being spent on wealthy people when so many others are struggling.

But this amendment holds serious unintended consequences and could wind up harming not only small farmers, but farmers and ranchers of all sizes and income brackets, right along with the local economies they keep afloat.

Think of it this way. If you removed all the safe drivers from the auto insurance pool, or all the homeowners outside of floodplains, house and car insurance wouldn’t be affordable for anyone. That’s because insurance companies have to spread risk and delivery cost out across a diversified customer base to make products more available for all. For every risky policy, you need one with little risk.

If the amendment passes, the farmers left in the insurance pool will have to fork over more for premiums, and even then, their quality and speed of service will likely diminish as insurers wrestle with shrinking profit margins or losses.

Some will argue that the government shouldn’t be involved in crop insurance at all. That’s not realistic.

That would leave America in the same position it was in before we had a vibrant crop insurance system, when costly ad hoc disaster bills came before Congress nearly every year and taxpayers—not private insurers—bore all the risk.

For this reason, the country’s major financial institutions are urging Senators to vote no on all crop insurance amendments that would harm the crop insurance infrastructure.

Damaging the effectiveness and affordability of what’s left of Iowa farmers’ safety net and their most important risk management tool would only worsen the economy as a whole.

Alan Rosendahl is a Senior Vice President at Iowa State Bank and a farmer who resides in Kesley, Iowa.

This op-ed appeared in Agri-News on June 28, 2012

As World Population Hits 7 Billion, Agriculture Feels The Pressure

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October 31, 2011 will mark the first time in history that seven billion humans will populate the planet, according to a recent United Nations report. The Executive Director of the UN’s Population Fund called the prediction “both a challenge and an opportunity,” noting that “globally, people are living longer, healthier lives and choosing to have smaller families.”

Commodity markets were already feeling pressure far in advance of the announcement as China placed record orders for feed grains to meet the demands of growing domestic protein consumption. The U.S. Grains Council projects that China will need to import 5-10 million tons of corn for the 2011/12 season, a huge increase from USDA’s estimate of 2 million tons for that period.

About the same time, the UN also updated its grain supply forecasts, noting that world markets remained remarkably tight. So while it seems that the world will slide by with enough food to accommodate its seven billionth inhabitant, the world population is expected to increase by another third by the end of the century.

No respected authority is arguing whether or not we’ll need more food. That’s a certainty. But farmers in the U.S. might have been surprised that the very policy that is in place to help ensure that America’s food production system is efficient and effective – crop insurance – is again under the microscope and was recently targeted by the White House for an additional $8 billion in cuts in the next decade.

That suggestion received a chilly, bi-partisan reception on the Hill by crop insurance champions of all stripes. U.S. Representative Frank Lucas (R-OK), Chairman of the House Agriculture Committee, and U.S. Senator Pat Roberts (R-KS), Ranking Member of the Senate Agriculture Committee, responded quickly, noting that although agriculture has and will continue to do its part to help balance the budget, “The President’s policy priorities reveal a lack of knowledge of production agriculture and fail to recognize how wholesale changes to farm policy would impact the people who feed us.”

“For example,” they said, “cutting $8 billion from the crop insurance program puts the entire program at risk. We have heard again and again from producers that crop insurance is the best risk management tool available. In jeopardizing this program, the President turns a deaf ear to America’s farmers.”

South Dakota’s Senator John Thune (R) agreed and stressed the importance that agricultural budget-cutting decisions should be left to those who understand how each program works, urging that the cuts “can’t be tilted and weighed too heavily against our farmers.”

But Democrats had a lot to say about crop insurance as well. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) reiterated the view of Roberts and Lucas in a recent statement. “Agriculture will do its fair share in helping to reduce the deficit, but as I’ve always said, decisions on where those cuts come from should be made by the Agriculture Committee, where we constantly receive input from farmers and others in the agriculture community,” she said. “Farmers across the country have made it very clear that maintaining crop insurance and responsible risk management tools are critical, especially as droughts, floods, and devastating storms have battered farms across the country.”

Arkansas Senator Mark Pryor (D) was even more blunt during his weekly conference call with reporters. “Rural America is going to take it on the chin, and that is what you see with the Obama plan,” Pryor said.

Rep. Collin Peterson (MN), the top Democrat on the House Agriculture Committee, was likewise critical, especially when it came to one component of farm policy, which he considers essential to rural America’s success. “I’m very opposed to cutting more from crop insurance,” Rep. Collin Peterson (D-MN) said, explaining that a program this important cannot withstand cuts of that magnitude again, the way it did in 2008.

Despite its broad coattails of political support, crop insurance is again under scrutiny. The question becomes how much more can the budget committee take before the policy itself becomes impotent when calamity strikes the farm?

And the answer to the question will hold serious ramifications, not just for the U.S. farmers and ranchers, but also for the growing number of hungry mouths to feed.

A Broad Spectrum of Voices from All Corners of Agriculture Sing the Praises of Crop Insurance

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The recent Farm Bill hearing in Wichita, Kansas has been called “a crop insurance pep rally” by some who point to the fact that when a panel of farmers and producers were asked by Senate Ag Committee Chairman Debbie Stabenow (D-MI) what they thought was the most important farm policy, the answer was “crop insurance.”

This panel isn’t the exception but the rule. In fact, over the last six months, a large swath of rural America has praised the farm policy that has truly become rural America’s most cherished tool for hedging risk: crop insurance.

These quotes are just a sampling from the opinion pages, newswires and radio stations from coast to coast.

National Farmers Union President Roger Johnson explains in an Omaha World Herald op-ed on May 31, 2011 why crop insurance is so important in a time of tight budgets and serious fiscal constraints:
“Crop insurance — which is the most important component of the farm safety net for specialty crop producers and growers of most major crops — was specifically created to ensure that private insurance companies, not taxpayers, shoulder the burden of funding payouts following crises.”
In an op-ed appearing in The Hill on June 8, 2011, Congressman Larry Combest and reigning Miss America Teresa Scanlan spoke about the role of farm policy in shielding farmers from what is otherwise a very risky business:
“That is where our nation’s farm policy comes into play — to provide some stability for our farmers and for the country’s food and fiber supply while limiting taxpayer exposure. A good example of this is crop insurance. Farmers buy policies, made possible with government investment, to act as a cushion. When disaster strikes, private insurance companies cover the bulk of the losses, shielding taxpayers from tremendous risk exposure. But, without the public partnership, multiple peril insurance on a crop — something we take for granted on our cars and homes — would not be possible.”
During an interview on Agri-Pulse’s Open Mic on June 13, 2011, USDA’s Chief Economist Joseph Glauber notes the importance of crop insurance to the nation’s farmers:
“Most farmers now see [crop insurance] as a primary tool for risk management. An important tool for risk management.”
The Dallas Morning News recently featured an op-ed by Texas farmer Matt Huie that says lenders require the type of assurance found in strong farm policies to make loans to farmers, particularly young ones like him.
“Because of the many challenges, all young farmers depend on components contained in the 2008 Farm Bill—most notably crop insurance—to provide lenders with the confidence and collateral they need to extend loans. Politicians continue to put these components to the test, even though without crop insurance, farmers throughout the South, Midwest, and various other parts of the country, would have been left with no crop—and no starting point on which to rebuild—due to the range of floods, droughts, tornadoes and frosts, this year alone.”
Former Agriculture Secretary and Nebraska Senator Mike Johanns (R) recently told an agriculture policy group that although crop insurance has been cut by more than $12 billion in the last several years, there is no telling what policies will be slashed during the on-going budget discussions:
“Crop insurance is the real safety net,” he said. Johanns explained that with the government not having to make loan deficiency payments and counter-cyclical payments due to higher crop prices, the key component to the Farm Bill, especially as a safety net, is crop insurance. He added that,“the battleground here is to keep crop insurance in place and do everything we can to improve it.”
In an op-ed appearing in the Fargo Forum on April 24, 2011, Roger Widner, Chairman of American Crystal Sugar Co. in Minnesota discusses federal spending on farm policies and what Minnesota farmers rely on most for hedging their risk:
“Meanwhile, the policies in place to help the state’s corn, soybean and wheat growers hedge risk continue to operate under budget and represent less than one-quarter of 1 percent of federal spending. Then there’s arguably the most important tool to Minnesota farmers: crop insurance. Crop insurance was specifically designed to shield taxpayers from mega-payouts that could result from catastrophic situations such as commodity price collapses and weather disasters.”
The American Farm Bureau Federation’s Mary Kay Thatcher explains to radio listeners across the country on May 13, 2011, the value that farmers place in their crop insurance policies:
“It’s just a real good risk management tool. We’re able to have famers pay part of the premium and have government pay part of the premium to make it affordable and it just ensures that if we have tough weather – especially like we’re having now – lots of wildfires in Texas and a lot of flooding in the Midwest, that farmers are able to indeed get enough assistance that they can farm for another year.”
After touring a drought-ravaged part of his home state of Kansas, Sen. Pat Roberts commented about the need to ensure that the 2012 Farm Bill contains effective farm policies:
“If there is anything we want to preserve and strengthen, it is crop insurance.”
Alan Rosendahl, a Senior Vice President at Iowa State Bank and a farmer in Iowa wrote an op-ed in the July 13, 2011 edition of the Cedar Rapids Gazette which detailed the value that banks place on crop insurance when making loans to farmers:
“As a banker and a farmer, I can tell you that federal crop insurance is the only thing that makes it possible for us to loan money to small farmers in Iowa. Banks, like other businesses, need to turn a profit to stay in business. But loaning money to small and beginning farmers can be very risky, because they often have less net worth, and tighter cash flows. Coupled with the fact that small banks are inherently risk-averse, particularly after the banking implosion of 2008, and you can see the dilemma.”
A reporter with the Argus-Leader noted that at a regional meeting, South Dakota farmers told Senator John Thune (R) that access to reasonably priced crop insurance is their safety net and is necessary to safeguard their futures:
“It makes sense to make this the centerpiece of ag policy.”
USDA’s Risk Management Agency notes the importance of the crop insurance program to farmers on their website:
“More farmers and ranchers participate in and have more at stake in the crop insurance program than any other USDA program.”
As Mother Nature wreaks havoc on the U.S. this year, with hurricanes on the East Coast, droughts in the Southwest and floods throughout the heartland, it’s no wonder America’s leaders are speaking out about the importance of crop insurance. A plan to manage risk is something that farmers in the U.S., and everywhere else for that matter, will always need.

Leading Lawmakers Laud Crop Insurance

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As the recent budget deal is interpreted and the Farm Bill debate heats up, important members of the House Agriculture Committee are singing the praises of crop insurance and underscoring its prominence as a necessary risk management tool that helps farmers weather adversity.

Both the Chairman and top Democrat on the Subcommittee on General Farm Commodities & Risk Management – which has jurisdiction over farm policy and crop insurance – addressed the sugar industry’s annual conference – The International Sweetener Symposium – held July 29 until August 3 in Stowe, Vermont.

Chairman Mike Conaway (R-TX) outlined some key principles that should guide the writing of the 2012 Farm Bill. The first principle on his list was that the policy must not undermine federal crop insurance. “There is one thing besides faith in God that is keeping Texas producers afloat right now during the worst drought we have seen in years, and that is federal crop insurance. We cannot afford to mess that up,” he said.

The chairman went on to explain just how important a strong farm policy is right now. “Agriculture is the one bright spot in an otherwise grim economic picture,” he said. “We shouldn’t take it for granted and we certainly shouldn’t gamble with it. We need good farm policy. Good farm policy doesn’t cost a lot. However, what history teaches us is that bad farm policy costs too much.”

Congressman Leonard Boswell (IA), the top Democrat on the subcommittee, gave crop insurance his own boost in the arm. Boswell recounted that when he retired from the army and returned to Iowa to farm, he quickly realized that farming had really changed in the 20 years that he had been away. He explained that in the old days, in order to farm, a producer needed access to land and a place to buy and sell a product, like a co-op or an elevator.

“After surviving the farm crisis in the late ‘70s and early ‘80s, I realized the importance of a good crop insurance agent to help me manage my risk,” said Boswell. “I work closely with my agent to ensure that I will never be put in a position that I was during the 1980s farm crisis.”

Boswell echoed Conaway’s sentiment that farm policies are important to ensuring the health and vitality of the nation as a whole. “I share this because I understand the importance of crop insurance in the country and safety net programs across the country that enable producers to provide for their families and feed those across the nation,” he said.

Joining the leadership in speaking out about the importance of crop insurance was Ohio freshman member Bob Gibbs (R), who is a farmer and also a member of the House Agriculture Committee. “I believe that in this next farm bill, the vehicle to protect farmers from weather and price disruptions will be a viable crop insurance program,” he wrote in a recent op-ed in The Hill. “Crop insurance, along with other initiatives such as the ACRE program, can be tailored to reduce risk and protect the viability of our farming infrastructure,” he said.

Gibbs explained that in the next Farm Bill, Congress needs to ensure that risk management tools are in place to help farmers hedge their risks and in turn, ensures a stable food supply for U.S. consumers. “These programs provide farmers with some level of certainty and confidence as they make their management decisions to risk a tremendous amount of capital by putting that seed in the ground,” he said.

House Agriculture Committee ranking member and one of the lead architects of the 2008 Farm Bill, Collin Peterson (D-MN) recently said that there should be no changes to the crop insurance program in the upcoming Farm Bill. “I am against making any cuts in crop insurance…any changes in crop insurance,” he recently told a group of Minnesota farmers. He added that “crop insurance for me is the bottom line,” adding that he fears that at some point in time, it may be the only viable farm policy left.

USDA to Congress: “Crop insurance is a vital part of the farm safety net”

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“Crop insurance is a vital part of the farm safety net and has become an integral part of business life for a large majority of American farmers and ranchers,” said USDA’s Risk Management Agency (RMA) Administrator William J. Murphy in testimony before the House Subcommittee on General Farm Commodities and Risk Management.

“[Farmers] would find it difficult to continue providing the United States and the world with an abundant supply of food, fiber and fuel without the protection provided by this part of the farm safety net,” he said in his June 24, 2011, appearance before Congress.

With droughts, floods and other disasters affecting crop production across many parts of the U.S., “this year is an excellent example of how important the farm safety net has become,” said Murphy. “Food security is important to this country. I’d hate to be put in a position where we don’t have these [crop insurance] programs and have widespread losses across the country.”

Murphy detailed the unique public-private partnership which makes the crop insurance program unique and how RMA works directly with its private partners—the 15 approved insurance companies—and the agents who deal directly with farmers and ranchers.

“Producers purchase Federal crop or livestock insurance from insurance agents operating in their communities, who sell the insurance on behalf of the 15 insurance companies,” he explained, noting that “this relationship leverages the respective strengths of the public and private sectors.”

Murphy also explained how participation in the crop insurance program has increased significantly, following changes enacted in 1994 by Congress when fewer than 100 million acres of farmland were insured under the program. “Today, over 250 million acres of farm and ranch lands are covered by Federal crop insurance, for an overall participation rate exceeding 80 percent for the major crops.”

“As the amount of insured acreage has increased, so too has the liability, or value of the insurance in force,” said Murphy. For example, in 1994, program liability was less than $14 billion, compared to the 2011 liability which is estimated to exceed $100 billion. But the program has seen sustained growth as demonstrated by the increasing proportion of acres insured at buy-up levels over the last decade. “Today, over 90 percent of all policyholders purchase buy-up levels of coverage,” he added.

Additionally, Murphy explained to Congress that one of the most important considerations for the Federal crop insurance program is the premium cost for producers. “If premium rates are too high, producers will not participate in the crop insurance program. If premium rates are too low, actuarial performance will deteriorate,” he added.

That is why government involvement is necessary. Without it, affordable and widely available coverage wouldn’t exist. And without crop insurance, farmers would be hard pressed to obtain necessary operating capital from lenders.

Murphy explained many lenders now require crop insurance coverage in order to make operating loans to crop and livestock producers, and many producers use crop insurance as collateral for the loans.