Crop insurance saves farmers, costs taxpayers

Even though lots of corn and soybean farmers are taking a beating because of drought this summer, it’s not likely to drive many out of business. That's because most carry terrific insurance, and the worse the drought becomes, the more they’ll will be paid for lost crops. The federal government picks up most of the cost of crop insurance program, and this year that bill is going to be a whopper. KCUR’S Frank Morris reports for Harvest Public Media.

Stop by most any un-irrigated farm across the lower Midwest and you’ll see crops in distress.
AMB truck

Loren Alderson pulls his pick up off the road and into a field of withered soy beans, near Nickerson, Kansas.

LOREN ALDERSON:
Two years ago, this would have been about three times this tall. It’s to a large degree already lost.
“So this is not a break even, most likely, not a break even proposition here.”
Probably not. However the government has a program of crop insurance, revenue insurance, and it certainly is a life saver for years like this.

Babcock1:
I’d say that farmer is typical of most farmers effected by this drought. They’re not too worried because the great majority of them have crop insurance.
Bruce Babcock specializes in ag economy at Iowa State University. He says that in the corn belt upwards of 85 percent of farmers carry crop insurance… if you can call it that.

Babcock2:
IT’S NOT really insurance. Because, as we know, when we buy insurance, we have to pay the full premium, and that premium covers not only the losses, or the claims that are made, but also the administration and profit for the company.

But, when a farmer buys crop insurance the government not only picks up most of the premium, it also pays operating expenses for the companies. Those two subsidies cost close to 8 billion dollars a year. But there’s more. Tax payers also insure crop insurance companies against catastrophic loss.
So, as claims from this year’s drought mount, the USDA will shoulder a larger and larger share of the payout. Babcock says it’ll likely be taxpayers, not insurance companies paying the bulk of this year’s crop insurance claims, which could easily run more than 10 Billion dollars.

Babcock3:
SO, the drought really shows how important the program is, and who’s really funding it.

Pay outs are going to be extra high because most cornbelt farmers also carry coverage tied to the changing value of the crops they produce. The drought has cut projected supply, and pushed prices way up. So, the more bushels of corn lost, the more each one of those lost bushels tend to be worth for a farmer’s insurance settlement… and the more tax payers owe drought-stricken farmers.

Babcock4:
Crop farmers are going to be OK coming out of this drought. Tax payers are not going to be. They’re going to be paying large losses.

Of course tax payers do expect to eat, even after an agricultural disaster. And Tom Zacharias president of National Crop Insurance Services says in that light...

Zacharias1:
Crop insurance makes sense. It’s designed to help the consumer. So that we know that we have stable, secure food supply, we what to keep farmers in business from year to year.

Tom Zacharias says crop insurance is a pretty efficient way of doing that. Because, while farmers pay into the system year after year, they don’t get any money out until something goes wrong. In normal years crop insurance companies cover losses themselves. And he says those insurance companies are eager to please.

Zacharias2:
These folks are 24/7 we have loss adjuster staffs in the field as we speak.

Disaster coverage payments typically arrive in time to pay for getting the next crop in the ground, and to keep the food system running. Farmers say it doesn’t go much beyond that, though. Even crop insurance has a deductible, so farmers will lose income may struggle to pay long-term expenses.
So, while it will take months to figure the true costs of this rapidly intensifying drought. It’s clear there is going to be plenty of financial pain to go around.
Frank Morris, Harvest Public Media