New farm bill must highlight crop insurance
By Penton Business Media
Apr. 9, 2012 - U.S. Secretary of Agriculture Tom Vilsack, leaders of the U.S. Agriculture Crop Insurers Association and the directors of all U.S. grain associations agree that the single most critical part of the upcoming farm bill has to be crop insurance.
Farmers in the Southeast echo that sentiment, many noting that high prices have brought with them highest in history input costs, and risk associated with planting such a capital-intensive crop demands some sort of safety net.
And four major farm groups recently joined the chorus backing crop insurance as a must in any new legislation.
Major spring-planted crops in the Southeast will almost certainly be in the ground before any action is taken on the upcoming farm bill.
However, there is particular concern among wheat growers that some type of crop insurance be given at least tentative agreement in Congress prior to planting later this summer and fall.
Smaller acreage, less diversified growers, especially those new to full-time farming are particularly vulnerable to weather related disasters. Without crop insurance, some simply couldn’t ride out the economic storm, lacking the on-farm equity to leverage a new year of bank financing.
Speaking at a recent meeting of nearly 5,000 farmers attending the Commodity Classic, Vilsack said, “The first thing a new farm bill must include is a safety net for farmers. U.S. farmers, mostly in the Southwest, lost 55 million acres of farm production to weather related disasters last year.
“Without an insurance program to get them from one crop to the next, some of these growers would be out of business,” Vilsack adds,
“In our quest to provide food for future generations, in an ever increasingly over-populated world, we simply can’t afford to lose farmers to weather problems.
“Over the past three years the federal government guaranteed payment of over $30 billion in crop insurance claims.
Providers made money
Still, the insurance operations that made those payments made money, and even provided about a 10 percent positive return on tax dollars — that makes a strong case for a viable crop insurance program,” Vilsack says.
Crop insurance companies wrote more than $11.9 billion in federal multiple peril crop insurance premiums last year, covering nearly 265 million acres of farmland, protecting more than 80 percent of eligible crops, with total potential liability exceeding $113 billion.
On March 15, speaking to the U.S. Senate Committee on Agriculture, Nutrition and Forestry, Steve Rutledge said, “How crop insurance emerges from the 2012 farm bill process will hold major ramifications for this risk management program and for America’s farmers and ranchers who have come to rely on it.”
Rutledge, who spoke on behalf of crop insurance companies, underscored the public/private partnership that is unique to crop insurance and how that relationship lowers risk for taxpayers.
Both Secretary Vilsack and Rutledge, who is chairman of Farmers Mutual Hail Insurance Company of Iowa, have urged both houses of Congress to avoid further budget cuts to the crop insurance program.
Since 2008, crop insurance programs in the U.S. have absorbed about $12 million in budget cuts. “This reduction is astounding when one considers that crop insurance represented only 8 percent of the farm bill spending and a meager one-tenth of one percent of overall government outlays,” Rutledge said.
“I can’t tell you how many times I have seen the relief and gratitude on a farmer’s face when they realize that because of crop insurance, they will be back in the fields in the spring and life will go on uninterrupted,” he added.
“Today’s legislators need to quit pointing the finger of blame and the difficulty of our economic times and get things done. The legislature of 150 years ago passed legislation that provided an investment in the future of America, and our current legislators need to take a cue from their predecessors and get some things done in Washington,” Vilsack said.
“In my farming days, when a combine broke down, we didn’t sit around and argue about whose fault it was. We figured out a way to fix it and got the combine back in the field,” he added.
At least one member of Congress appears to get the message. North Dakota Senator John Hoeven told Secretary Vilsack at a recent meeting on Capitol Hill that crop insurance would indeed be his top priority when he discusses agriculture-related funding initiatives.
Hoeven is working with other senators to craft a cost-effective farm safety net, the base of which is a strong crop insurance program.
“Everybody throughout our state, all the producers, are telling us that crop insurance is absolutely their No. 1 priority,” Hoeven says.
Difficulty with math
Some politicians appear to have little difficulty doing some of the math involved in agricultural crop production, but have no aptitude for nor interest in the more complex look at the overall risk involved in farming.
It’s easy to compute that a farmer who grows a thousand acres of corn and produces a crop at the national average of 150 bushels per acre and sells his or her crop for $7 a bushel makes a million dollars.
Calculating how much it really cost to produce that 1,000 acres of corn is quite a different story. More importantly, the economic risk involved in producing that crop is off the chart, compared to other manufacturing operations.
Keeping farmers in business is critical to the long-term viability of the U.S. economy and more critical to the U.S. being able to feed itself and produce enough extra food to benefit from lucrative foreign trade agreements — a little publicized fact that significantly helped soften the economic blow of the most recent financial recession.
As part of the current farm bill, farmers have two different safety nets.
Direct payments are by all accounts the least defensible when it comes to federal budget cuts. Currently farmers can be eligible to receive: 52 cents a bushel for wheat, 28 cents a bushel for corn, 7 cents a pound for cotton, 44 cents a bushel for soybeans and $36 a ton for peanuts.
For each commodity, the total direct payment is determined by multiplying 83.3 percent of the farm's base acreage times the farm's direct payment yield times the direct payment rate. Direct payments are not based on producers' current production choices, but instead are tied to established base acres and yields.
Crop insurance is subsidized by the federal government, but varying percentages of the cost are paid for by growers.
Vilsack contends this program is much more defensible than direct payments and appears to have centered his efforts on retaining some components of crop insurance provided in the 2008 farm bill and strengthening other sectors, despite projected budget cuts.
Growers, especially more diversified and small acreage farmers in the Southeast, tend to prefer crop insurance because it is more predictable than direct payments.
For example, last year wheat growers bought about 135,000 policies for crop revenue coverage insurance at a cost of more than $1 billion.
In 2011 the Upper Southeast harvested one of its biggest and best crops in years. Subsequently growers in the region planted another big crop this year.
The risks involved in planting a crop in the fall, carrying it over the winter and harvesting it in late spring are high. Without a viable crop insurance program, growers are likely to be reluctant to pay for the inputs needed to produce high yielding wheat in the region.The momentum for a viable crop insurance program in the upcoming farm bill appears to be gaining steam. Most recently the joint directors of the corn, soybean, wheat and grain sorghum associations released a joint statement calling for a strong crop insurance program.