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The Crop Insurance Conundrum

More Evidence that a Safety Net has Morphed into a Web of Destruction

By Brian DeVore
February 10, 2022

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When one sees the word “unambiguously” used in a carefully researched academic paper, it’s time to take notice. For example,  a recent Journal of Policy Modeling study reports results that are “…unambiguously suggestive of a crop insurance policy regime that is biased in the direction of increasing consolidation in crop farming….” That conclusion is based on an analysis done by the researchers, two of whom are agricultural economists at the University of Nebraska, of 426 counties from five corn and soybean producing states: Minnesota, Iowa, Nebraska, Illinois, and Indiana. The study, which covers the crop years 1992 to 2012, makes one thing crystal clear, according to the authors: “…subsidized crop insurance can only accelerate the trend toward further consolidation with consequences for sustainability and depopulation of rural communities.”

Rough translation: there is little doubt our country’s biggest tax-funded ag safety net program is destroying farmers and the rural communities that rely on them, which is polar opposite of what its creators had in mind over 80 years ago. Compound that with the fact that it’s long been known the current crop insurance program encourages an environmentally harmful duo-culture of corn and soybeans, and the argument for major reform is more powerful than ever.

This research is one of the first to ask a blunt question: Does subsidized crop insurance affect farm industry structure? The answer is yes, and mostly in a negative way. This falls in line with other research that shows how, in general, our agricultural subsidy system benefits the biggest, most well-financed players to the detriment of everyone else. This latest study puts hard numbers to what Land Stewardship Project farmer-members have been reporting over the years: the way federal crop insurance is implemented is having major unintended consequences.

The Nebraska research, which takes into account other factors that might affect consolidation such as technological advances, points out that the negative effects of crop insurance became particularly evident after 2000, when the Agricultural Risk Protection Act (ARPA) went into effect. ARPA raised the amount of a farmer’s insurance premium that would be covered by the government, as well as enhanced other options. The goal of these changes was to increase participation in crop insurance, and it worked — today more than 90% of corn and soybean crops are covered by some sort of policy. But, again, there have been unintended consequences, one of them being fewer farmers on the land. On average, the counties studied by the economists lost almost 24% of their farms after 2000.

This is not news to the Land Stewardship Project, which, for the past decade, has been working with allies across the country to return crop insurance to its roots as a way to shield farmers from major weather disasters. In fact, LSP has issued several reports that outline the negative impacts the program is having on small and medium-sized farmers, beginning farmers, and the land itself:

• Crop Insurance — The Corporate Connection
• Crop Insurance Ensures the Big Get Bigger
• How Crop Insurance Hurts the Next Generation of Farmers
• Crop Insurance: Principles of Reform
• Crop Insurance: A Torn Safety Net

These reports relay long-term concerns voiced by farmers who are seeing firsthand how large cropping operations are using the benefits they receive through subsidized insurance to outbid average-sized farmers on land purchase and rental rates, creating fewer, and bigger operations. This has repercussions all the way to rural Main Streets, which are increasingly being depopulated. This hits beginning farmers and diverse operations particularly hard, since they are more likely to be involved in enterprises that don’t qualify for extensive insurance coverage, such as vegetables or pasture-based livestock.

In addition, because of the guaranteed income these mega-operations can glean from even the most marginal of farmland, corn and soybeans are being raised on acres normally considered too low-producing to bother tilling. That inflates the bushels of crops sent to market, deflating prices. This is particularly ironic given that crop insurance now offers a way for farmers to not only be protected against weather disasters, but from drops in crop prices. This produces counterintuitive situations where even when the weather cooperates and there are bumper harvests of corn and soybeans, farmers receive tax-funded payouts through their insurance. This encourages more production of corn and soybeans, particularly on land that maybe shouldn’t be row-cropped in the first place, which perpetuates the cycle of record harvests and thus higher indemnity payments.

What’s particularly troubling is that those marginal acres — too wet, too dry, too hilly, low fertility, etc. — that now produce guaranteed income for large cropping operations have been in the past the only real estate beginning farmers could afford to rent or buy. On top of that, when a weather disaster triggers big payouts to large cropping operations, they have even more money in their war chest to take control of land, particularly in areas where acres haven’t historically produced high yields. Indeed, the Nebraska study found that crop insurance premium subsidies paid to farmers have the biggest effect on consolidation in counties where production is the riskiest.

 

What Happened?

How did a system what was launched in 1938 to keep farmers from being wiped out by catastrophic weather disasters such as the Dust Bowl become such a negative determiner of how the landscape and our rural communities look? Farming is inherently risky, given the vagaries of weather and markets, and that’s part of the reason programs like crop insurance were created. But there’s a difference between cushioning the blow and fueling endeavors that have widespread negative consequences,

The crop insurance program is administered by the USDA as a quasi-private program, with policies sold and serviced through some 14 private insurance companies. For decades, the program was relatively straightforward — if yields were severely cut or wiped out, farmers who bought a policy received an indemnity.

The program underwent a dramatic shift in the 1990s. Following the devastating floods of 1993, Congress sought to increase crop insurance enrollment by ratcheting up how much of the farmer’s premium cost the government would cover (premium subsidies were increased again by ARPA in 2000).

Today, the federal government takes on around 60% of the farmer’s premium cost (depending on the level of coverage), which is almost double what it was in 2000. Even more significantly, it was in the 1990s that “revenue insurance” options were added to the program. For the first time, crop producers were able to assure themselves a target level of income based on projected prices and historic yields.

In an attempt to increase farmer participation even more, the government made another key change to crop insurance in the mid-1990s by no longer requiring farmers to undertake basic soil-conservation practices in order to qualify for indemnities. The 2014 Farm Bill tried to correct the problem by adding “conservation compliance” to eligibility requirements for crop insurance. Conservation compliance requires farmers to put in place certain conservation practices in order to remain eligible for enrollment in government farm programs. Unfortunately, conservation compliance has been inconsistently enforced, if at all.

Insuring Resilience

In addition, crop diversification, cover cropping, and other methods that build soil health and thus create more resilient farms in the face of extreme weather have traditionally not been recognized by USDA officials as “good farming practices” and thus are, ironically, considered to be too risky to qualify for government subsidized insurance.

It’s more important than ever to return resilience to farmland, given the havoc climate change is playing on crop acres. One Stanford University study estimated that between 1991 and 2017, $27  billion — or 19% — of the national-level crop insurance losses were caused by global warming.

Farmers received more than $143.5 billion in federal crop insurance payments between 1995 and 2020, according to the Environmental Working Group’s recent analysis of USDA data. That doesn’t even count the $103.5 billion in subsidies that went toward covering farmers’ insurance premiums. Just under two-thirds of those payments were for damage caused by excessive moisture and drought — two problems that will only get worse as climate change creates more extreme weather events. Indemnities for drought were $325.6 million in 1995 and rose to $1.65 billion in 2020, a 400% increase. Insurance payouts for soggy fields were $685.4 million in 1995 and increased to $2.6 billion in 2020, a 300% rise.

Path to Reform

Should we dump crop insurance? No. It’s critical to have a safety net that’s true to its roots as a tool for managing risk in a way that benefits the land and communities and doesn’t depopulate the countryside.

LSP has long called for reform of crop insurance. Limiting the payouts mega-operations can receive, recognizing the risk-reducing benefits of soil health practices, and making it easier for organic/regenerative farming operations to get insured are good places to start. As the biggest player in agricultural crop policy, insurance could go a long ways toward encouraging regenerative farming.

Farmers participating in LSP’s Soil Health Network are proving that cover cropping, managed rotational grazing, no-till, and diverse rotations can make agriculture less of a gamble in the long run, and an improved crop insurance system could help producers make the transition into these innovative systems. Fortunately, the USDA’s Risk Management Agency is starting to recognize the climate mitigation benefits of practices like cover cropping and, thanks to the work LSP and others have done in recent years to highlight the benefits of soil health, have adjusted the crop insurance program’s rules to make it more accommodating to practices like cover cropping. In fact, farmers interested in receiving a discount on their insurance premium for planting cover crops may want to check out the Pandemic Cover Crop Program — the deadline is March 15.

Crop insurance falls under the purview of the federal Farm Bill, which is up for renewal in 2023. Discussions around the development of this massive legislation have already begun, and LSP is seeking input from our members and allies on how to make it into the kind of public policy that benefits family farmers, the land, and communities — not corporate Big Ag and its boosters. Check out LSP’s Federal Policy web page for details on how to get involved.

It’s time to make crop insurance a true safety net, rather than a web of destruction.

Brian DeVore is the editor of the Land Stewardship Letter.

Category: Blog
Tags: climate change • crop insurance • farm consolidation • federal farm policy • soil conservation • USDA Risk Management Agency

Upcoming Events

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February 2023

Tuesday February 7

9:00 am – 12:30 pm
Wholesale Readiness Training for Farmers
Wholesale Readiness Training for Farmers
Tuesday February 7
9:00 am – 12:30 pm

MISA, UMN Extension and Renewing the Countryside are offering training and one-to-one technical assistance for farmers who want to grow their operation into wholesale markets. Wholesale isn’t just for large-scale distributors. You can use this training and support team to prepare to sell to schools, restaurants, grocery stores and hospitals in your community. Participating farmers will be eligible for $500 mini-grants to cover expenses related to launching a wholesale enterprise. 

For details, click here.

10:00 am – 2:00 pm
Crop, Livestock & Soil Innovation Conferences Workshop
Crop, Livestock & Soil Innovation Conferences Workshop
Tuesday February 7
10:00 am – 2:00 pm

The Land Stewardship Project is a co-sponsor of the 2023 I-90 & Highway 14 Tour CLASIC. Network, learn, and get inspired with area farmers and regional farming innovators as we discuss current trends for improving productivity and profitability in crop and livestock operations utilizing soil-healthy practices. The Crop, Livestock, and Soil Innovation Conferences (CLASIC) is made up of two tours in Minnesota, traveling along Interstate 90 and Highway 14, consisting of several stops.

Click this link for more details and a complete listing of workshops. Each venue’s program is unique and varied — be sure to check them all out and register for multiple events.

The speakers for the Feb. 7 workshop are Dean Sponheim and Andy Linder. Sponheim is a 4th generation farmer from Mitchell County Iowa. He began strip-tilling in 1999, aerial applying cover crops in the fall of 2012, and started a cover crop seed business in 2014 and no-tilling corn and soybeans in 2019.

Linder farms with his dad near Easton, Minn. Their soil health journey unintentionally started in 2010 when they purchased a vertical tillage machine. In fall 2016 they put cover crops on every acre.They now no-till most of their corn aces and do some strip-till trials.

For more information and to register, click here.

Wednesday February 8

9:00 am – 2:30 pm
Crop, Livestock & Soil Health Conferences Workshop
Crop, Livestock & Soil Health Conferences Workshop
Wednesday February 8
9:00 am – 2:30 pm

The Land Stewardship Project is a co-sponsor of the 2023 I-90 & Highway 14 Tour CLASIC. Network, learn, and get inspired with area farmers and regional farming innovators as we discuss current trends for improving productivity and profitability in crop and livestock operations utilizing soil-healthy practices. The Crop, Livestock, and Soil Innovation Conferences (CLASIC) is made up of two tours in Minnesota, traveling along Interstate 90 and Highway 14, consisting of several stops.

Click this link for more details and a complete listing of workshops. Each venue’s program is unique and varied — be sure to check them all out and register for multiple events.

The speakers for the Feb. 8 workshop are Dean Sponheim, Martin Larsen, and Andy Linder.

Sponheim is a fourth-generation farmer from Mitchell County, Iowa. He began strip-tilling in 1999 and began no-tilling his corn and soybean acres in 2019. Sponheim started aerial applying cover crops in 2012 and in 2014 started a cover crop seed business.

Martin Larsen farms 700 acres near Byron, Minn., producing corn, soybeans, cover crops and food-grade oats in a full no-till system. As an Olmsted County Soil and Water Conservation District staffer, he gives technical assistance to farmers and manages soil health test plots.

Andy Linder farms with his dad, Don, near Easton, Minn. Together, they raise corn, soybeans, oats, canning crops, and grass hay. Their journey to soil health unintentionally started in 2010 when they purchased a vertical tillage machine. In the fall of 2016, a cover crop was put on every acre and they continue using cover crops. He has transitioned to most corn being no-till.

For more information and to register for the Feb. 8 workshop, click here.

Thursday February 9

9:30 am – 1:30 pm
Crop, Livestock & Soil Innovation Conferences Workshop
Crop, Livestock & Soil Innovation Conferences Workshop
Thursday February 9
9:30 am – 1:30 pm

The Land Stewardship Project is a co-sponsor of the 2023 I-90 & Highway 14 Tour CLASIC. Network, learn, and get inspired with area farmers and regional farming innovators as we discuss current trends for improving productivity and profitability in crop and livestock operations utilizing soil-healthy practices. The Crop, Livestock, and Soil Innovation Conferences (CLASIC) is made up of two tours in Minnesota, traveling along Interstate 90 and Highway 14, consisting of several stops.

Click this link for more details and a complete listing of workshops. Each venue’s program is unique and varied — be sure to check them all out and register for multiple events.

The speakers for the Feb. 9 workshop are Dean Sponheim and Martin Larsen.

Sponheim is a fourth-generation farmer from Mitchell County, Iowa. He began strip-tilling in 1999 and began no-tilling his corn and soybean acres in 2019. Sponheim started aerial applying cover crops in 2012 and in 2014 started a cover crop seed business.

Martin Larsen farms 700 acres near Byron, Minn., producing corn, soybeans, cover crops, and food-grade oats in a full no-till system. As an
Olmsted County Soil and Water Conservation District staffer, he gives technical assistance to farmers and manages soil health test plots.

For more information and to register for the Feb. 9 workshop, click here.

5:30 pm – 8:30 pm
LSP Farm Transition Planning Course: Session 3
LSP Farm Transition Planning Course: Session 3
Thursday February 9
5:30 pm – 8:30 pm

…Are you a farm family or landowner thinking about the future or next steps for your farm?

…Are you interested in planning for the next generation of farmers on your land?

…Do you have a spouse/partner helping to make these decisions? Are you both on the same page?

…Are you ready to begin the planning process but don’t know where to start?

THE WORKSHOPS WILL FOCUS ON: 

  • Values and Vision;  
  • Financial,  tax, and legal considerations; 
  • Options for farm transitions; 
  • Resources to guide the planning process,
  • Communication tools. 

YOU WILL COME AWAY WITH:

  • Tools to use that will help gain clarity around your future planning
  • Next steps toward creating a farm transition plan
  • Ideas and advice from other farmers and professionals 
  • Networks and support to continue to share and learn
  • Individualized support

Session One: Thursday, Jan. 26: The focus will be on values and vision. In addition, we will be getting to know one another, discussing expectations for the course, and understanding where folks are in the transition planning process.

Session Two: Thursday, Feb. 2: The focus will be on financial planning. Presenter Joy Kirkpatrick, a Succession Outreach Specialist for the University of Wisconsin Center for Dairy Profitability, will share her 29 years of experience working with farm families as they assess their financial needs for retirement and how that impacts their farm transition.

Session Three: Thursday, Feb. 9: The focus will be on legal issues in planning a farm transition. Jason Wagner, an attorney with Wagner Oehler Ltd., will share his experience and knowledge regarding legal aspects that need to be considered when planning a farm transition.

Session Four: Thursday, Feb. 16: The focus will be on communications and intergenerational considerations which are critical to a successful farm transition and that are often overlooked.

Session Five: Thursday, Feb. 23: The focus will be on long -term care issues. Kate Graham, an attorney with an elder law focus, will share her knowledge and experience of what needs to be considered when planning long-term care and how a farm transition can be impacted.  

Session Six: Thursday, March 2: The focus will be on integrating all that has been discussed and sharing resources (people, organizations, and materials) that are available to help continue the farm transition planning process. The goal is for each family to create individual next steps to continue the farm transition planning process once the course is over.

To register, click here.

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