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CROP INSURANCE AND FEDERAL GOVERNMENT ASSISTANCE

Published: Mon. Aug 20th, 2012

While the media continues to bash crop insurance in the face of a historic drought and similarly historic government crop insurance assistance, farmers are left trying to defend the one lifeline they have maintained to stay in business.  For those of you engaging in crop insurance debate in your local communities, here are a few pointers to internalize and distribute.

1.    Crop insurance is subsidized by the federal government, but without federal government assistance, private companies would not insure farmers.  Agriculture is just too risky.

Insurance industries are built on formulas and percentages.  They can tell you which age groups are most likely to be involved in a car crash and which areas of the country are most likely to endure a flood.  What they can’t find a percentage or a formula for is Mother Nature.  Was southern Illinois likely to experience a significant drought after experiencing significant floods one year ago?  Will Boone County, Illinois receive a massive hail storm in July 2013?  The risks associated with insuring farmers and farmland are too high so the federal government must step in to back private insurance companies.  The same goes for flood insurance.  Without government backing, what private insurance company would cover the Gulf Coast?

2.    Federal government crop insurance subsidies are paid only when a claim exceeds the amount the farmer has already paid for the policy and are paid directly to the insurance company.

As an example, if the federal government is paying 60 percent of a policy and the farmer is only paying 40 percent, only when a claim exceeds the 40 percent paid by the farmer does the federal government experience any budget outlay at all.  In Illinois, this doesn’t happen often because …

3.    Corn and soybean farmers pay in more to the crop insurance program than they ever receive.  Over time, Illinois corn and soybean farmers have more than paid for the insurance payments than they will receive this year.

Illinois is a low-risk state.  For every dollar spent on crop insurance in Illinois, only about sixty cents actually comes back to the farmer.  In fact, many Illinois farmers don’t take crop insurance because they expect to lose money over the lifetime of their business on the venture.

4.    The federal government needs to help insure farmers in order to maintain a food supply.

Crop insurance is different from other types of insurance.  First of all, farmers would be unlikely to find crop insurance policies without the backing of the federal government because of the risk involved in farming (see number one.)  But also, the federal government has an interest in maintaining a relatively even food supply over time for its population.  In a year like 2012, without crop insurance, many farmers would have gone out of business because they would be unable to withstand a year without any income to live on or pay off the debt of putting a crop in the ground.  That means that without crop insurance, 2013 would see a lot fewer farmers, a lot less food being grown, and much higher food costs long term for American consumers.   The federal government must invest in insuring farmers to maintain consistent food supply whereas an investment in insuring hotels or shoe stores isn’t as important.  Americans can survive without a vacation or a new pair of shoes.  They cannot survive without food.

 
 
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