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Joe Outlaw Texas AgriLife Extension economist and codirector of the Texas AampM Agriculture and Food Policy Center
<p> Joe Outlaw, Texas AgriLife Extension economist and co-director of the Texas A&amp;M Agriculture and Food Policy Center.</p>

Crop insurance becomes bigger target as primary safety net

Crop insurance likely will become an even more essential part of farm safety net when a new farm bill is finally signed into law. That means it will have an even bigger bulls eye on its back.

As crop insurance becomes the warp and weave of the farm safety net, it provides a tempting target for some legislators and numerous organizations who view funding for U.S. farm programs as wasteful and unnecessary.

“If crop insurance becomes the farm safety net, it has to work for the farmer,” says Joe Outlaw, Texas AgriLife Extension economist and co-director of the Texas A&M Agriculture and Food Policy Center.

“When crop insurance becomes the safety net, politics will get into it,” he said, during a risk management panel discussion, part of the second annual Southwest Ag Issues Summit in Oklahoma City.

“One of the biggest challenges I have when traveling across the country is debunking what smart people say about agricultural spending,” Outlaw said.

Chairman of the House Agriculture Committee Frank Lucas, in an interview with Southwest Farm Press, said preserving crop insurance support is a key focus in farm bill debates but adds that crop insurance funds will be about all that’s left for farm program opponents to target in years to come.

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“The cost of crop insurance to taxpayers is grossly overstated,” said Art Barnaby, Kansas State University agricultural economist and a risk management issues panelist. “There is no subsidy but a cost-share program. No cash is transferred unless a farmer has a claim.”

The key issue with crop insurance, Barnaby said, is to protect farmers against catastrophic loss. “That’s why they need government assistance.”

He also noted that farmers have considerable skin in crop insurance purchase. “Premiums in Texas for 2012 amounted to $1 billion,” he said. “Also, when critics complain about the cost to taxpayers, they don’t consider the gain years, only the losses.” Accounting for gains, he said, drastically reduces the amount of taxpayers’ money going into crop insurance.

He took 2009 as an example. The subsidy—or cost share—was $5.4 billion. Losses and claims were negligible, so the program ended up with a $1.4 billion gain from premiums paid. Total cost share from the government was closer to $4 billion.

Also on the panel was Tom Zacharias, president, National Crop Insurance Services (NCIS). “NCIS is the primary service organization for the crop insurance industry,” Zacharias said. “Individual revenue coverage is the bread and butter of the industry, and with 1994 legislation we saw the genesis of the modern crop insurance program.”

The program grew from 182 million policies in 1998 to 283 million in 2012.

Zacharias also responded by letter later in the week to a series of articles published in Bloomberg News that were harshly critical of the crop insurance program. He wrote:

“Over the last decade, elected officials, financial institutions, farm leaders and farmers have reached a general consensus that crop insurance is the best risk management tool available.  That conclusion was reached because crop insurance reduces the risk exposure to taxpayers while requiring farmers to purchase policies with their own money before enjoying the relative protection of insurance.   In short, it forces farmers to manage risk before, not after it happens, which saves taxpayers money.

“The factual errors, blatant omissions and obvious bias in this series were stunning and it is unfortunate that the editors of Bloomberg News agreed to release these stories publicly.  It was a great disservice to their readers and a personal insult to the hardworking farmers and ranchers of this nation.”

Panelists and audience members expressed other concerns for the continued viability of federal crop insurance. Payment limits could be a killer.

“A $250,000 adjusted gross income limit would affect a lot of people in this audience,” Barnaby said. “Adding payment limitations to crop insurance would be a serious threat.”

Zacharias agrees.  “Payment limitations would run head on into farm policy versus risk management. For risk management, we need a high level of participation and payment limitations could reduce farmer participation.”

Outlaw said farmers will have to rethink crop insurance decisions whenever a new farm bill is passed. Recent changes that allow growers to split out coverage for different production practices such as dryland versus irrigated has added some new wrinkles, but proposals likely to be included in new law  may offer even more layers and options that producers will have to weigh.

“Regardless of when a farm bill is done, farmers will see a shift from commodity program risk management tools to more insurance. It’s not necessarily a problem, just different,” Outlaw said. “We will need to engage in a huge education effort to help farmers understand the choices and costs associated with different insurance levels.”

Audience members expressed concerns about recent yield declines—caused by prolonged drought—and the resulting low average production history on which crop insurance coverage and premiums are based.

Panelists said farmers could still buy more coverage but the price would be higher.

Zacharias said ongoing and future challenges for NCIS include product delivery and continuation of premium subsidies. He also noted that producers do share in the cost of their crop insurance and that they receive payments only when they have a loss.

The focus of farm legislation and for the agriculture industry for crop insurance, he said, continues to be, “do no harm.”


Articles of interest on Southwest Farm Press:

Farmers purchase crop insurance while hoping for the best

Do opponents of crop insurance oppose farm programs?

U.S. farm economy poised to decline

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