This post is a part of a series on Farm Bill 2018
You’re not a farmer, but you’re invested in crop insurance.
The chances that you are a farmer are nil. After all, there are only 2.1 million farms in a nation of 323.1 million people. Yet, you are deeply invested in the nation’s farming enterprise. As a taxpayer, you back U.S. agriculture by financing a range of government programs that hover around $20 billion annually. Those tax dollars fund such things as price supports, research, marketing and crop insurance.
The case for crop insurance
It is in the interest of the 99% of us who don’t farm to help protect family farmers against two major hazards that are outside their control: market downturns and weather disasters. We do this through a “farm safety net” that consists of coupling price supports for agricultural commodities with crop and livestock insurance. Over 300 million acres are covered for $100 billion of insured liability annually. The legislative vehicle that authorizes these federal programs is a “farm bill” that is renewed every five years. The current iteration is due to be renewed by September 30 of this year.
It is a game of “Who is going to get your money?”
If—amid the current swirl of political news—you’ve not been following the scintillating path of the Farm Bill through Congress, the current status is that each chamber has passed dramatically different drafts of the bill. If Congress is to meet its deadline for reauthorization, it needs to reconcile the differing versions of the farm bill within the next few weeks. The two versions differ on whether to make the bill more equitable for family farmers and those seeking to get into farming, as the Senate version proposes, or to make it easier to abuse and defraud taxpayers to further enrich a very few already wealthy farmers, which the House version would enable. Specifically, the Senate version would set limits on the total subsidy payments that farms would be eligible to receive—at $250,000 per year per farm. Coupled with this is a measure to prevent the wealthiest of farmers from drawing on public support that they do not actually need. The cut-off for eligibility would be reduced from the present $900,000 annual Adjusted Gross Income (AGI) per farmer to $700,000. Additionally, the Senate version proposes tying eligibility for insurance benefits to the effectiveness of conservation practices.
These are welcome adjustments, even though they still fall short of the comprehensive reform needed to prevent open abuse of the farm safety net. For example, an earlier effort to reduce the insurance premium subsidy drawn by farmers with an AGI greater than $700,000 was defeated. Yes, the federal government doles out insurance payouts to farmers, plus the majority of the cost of their insurance premiums! More on the rationale for this in a bit, but the point here is that payment limit measures would level the playing field for small and medium family farms. This is just one of the issues that pits the interests of these farmers—and of taxpayers and fiscal conservatives—against the political power of large farmers and their agribusiness backers. As for the House version of the Farm Bill? Not only does it not include these sensible—if mild—reforms, it brazenly creates loopholes that would have non-farming relatives become eligible for “per farmer” benefits.
We’ve done that. It doesn’t work. Shall we try something different?
If we keep doing more of the same, the cost of insurance will balloon and make some wealthy people even richer—but it doesn’t have to. While the rationale for public support of family farmers is self-evident, in practice our crop insurance policies could be better. Over the past five years, federal crop insurance cost American tax payers an average of $9 billion annually, according to analysis from the Congressional Budget Office (CBO.) Drought and flood damage accounted for 72% of insurance payouts between 2001 and 2015, per accounting from the RMA. Climate change will only make this worse, as more frequent and extreme weather episodes drive up costs for the program. The CBO estimates—using scenarios developed by the Intergovernmental Panel on Climate Change—that crop insurance costs will increase by $1 billion annually through 2080.
This upward spiral is compounded by the fact that our current policy incentivizes waste—because it focuses on production regardless of environmental and other costs—instead of adoption of well-known, scientifically sound production practices that can minimize crop losses even under climate extremes. Adoption of the latter practices would result in a more resilient agricultural system that would reduce farm losses and the need for, and expense of, insurance to the public. We therefore should incentivize these kinds of scientifically informed and fiscally responsible systems. While the 2014 farm bill intended to do just this by requiring “conservation compliance,” the Office of the Inspector General has found that such compliance is weakly enforced.
What would make more sense?
It is reasonable for the public to expect the best farming practices in return for the farm safety net that their tax dollars provide. In fact, this could be done by connecting the different parts (“titles”) of the farm bill so they work together. For example, the Research Title generates information about the most sustainable farming practices, which are supported in large measure by the Conservation Title. Better coordination of the Crop Insurance Title with these two would make the entire farm bill more coherent and should reduce total costs to farmers, taxpayers and the environment.
To understand how we might do this, consider the nation’s “corn belt,” an expanse of 180 million acres dominated by a lawn of corn and soybeans, each grown in extensive “monocrops” (swaths of homogenous stands of a single crop.) As currently managed, these systems promote soil degradation and soil loss, water pollution and runaway pest crises. In turn, this exposes farmers (and all of us, as their underwriters) to the risk inherent in betting on a single system to be successful under all circumstances all the time. Every one of the environmental crises listed above can be mitigated, if not eliminated, by adoption of well-researched “agroecological” methods. We can drive this shift in farm management by tying eligibility for government programs, including crop insurance, to verified implementation of practices that conserve soil, build soil health, sequester carbon and increase biodiversity. These practices make farming systems more resilient to weather extremes and are more profitable to farmers because they reduce farmer reliance on purchased inputs. Further, more resilient farms would rely less on government supports like the federal crop and livestock insurance programs.
Perverse loopholes instead further enrich the largest farmers
At present, however, loopholes in our policies permit the largest and most profitable farms to receive both windfall payments and a disproportionate amount of farm bill subsidies. Because the current system rewards production, and not resilience, the result is that it is “large, very large and corporate farms,” just 4% of farms, that are the greatest beneficiaries of the public’s support. These farms account for 55% of US agricultural output and earn $1 M or more in gross farm cash income each year. Such farms face large risks, of course, but they don’t need public support to afford their insurance costs. It isn’t just that the public provides farmers insurance, but that we make it cheap insurance. The reason is that taxpayers subsidize 60% of crop insurance premiums. This is intended to incentivize farmers to buy insurance rather than force the government to come up with unbudgeted emergency payments every time major disasters strike. In practice, however, this has served to concentrate wealth. Those 4% of farms receiving the lion’s share of farm bill benefits have an operating profit margin greater than 10%. In contrast, the majority of small and midsize family farms—those which could readily adopt more diverse crop and livestock production methods, and which account for 45% of the nation’s farm assets—operate with a profit margin less than 10%. Those are the farmers who actually need the public’s support. It is a situation that clearly calls for payment limits to cap the amount of farm bill benefits that any one farm can receive.
Farmers can adopt and manage more resilient systems, and we should reward them for that
The 2014 Farm Bill—the most recent—introduced “Whole Farm Revenue” insurance for farmers wishing to diversify their farms (produce a variety of crops and livestock in integrated fashion.) Diversified farming systems protect farmers from catastrophic losses the same way diversified stock portfolios protect investors. Such systems tend to protect soil, filter and better store water, recycle and make better use of fertilizer nutrients, have fewer pest problems (and thereby require fewer pesticides), and result in lower costs and higher profits. Further, because fewer external inputs (such as chemical fertilizers and pesticides) are purchased, farmers earn more, and more of those earnings are recirculated in the local rural economy. However, under our existing risk management approach, these systems have proven more difficult to insure than large monocrops. The latter have long actuarial records, permitting insurers to set premiums with greater certainty, and are familiar to and therefore preferred by bankers and Farm Service Agency personnel. But this is counterproductive, as it discourages the best farming practices and encourages the worst. Barriers such as these, and those encountered by new and beginning farmers (who must establish a credit and cropping history to gain access to loans and insurance premium discounts), must instead be streamlined with more informed farm bill criteria. The Whole Farm Revenue insurance program is one step towards incentivizing resilient diversified systems. Programs to support beginning and younger farmers, who are also more likely to use diversified systems, are another way to build more resilient farms. The Senate version of the current Farm Bill attempts to address these issues.
What you can do:
Demand That Members of Congress Who Will Reconcile the House and Senate Farm Bills Make Your Financial Backing of Farm Programs More Effective, Responsible and Equitable
Sign On: Even though the Farm Bill programs described above are directed to farmers, we all have a stake. As taxpayers, we back these programs and—as we’ve seen—it is important that the programs be equitable and balance production with environmental responsibility and resilience. You can help make it clear to Congress that you strongly support these goals by signing our statement urging farm bill conferees to adopt the Senate version of the bill. The “conferees” are the 47 members of Congress who will work with the currently disparate versions of the Farm Bill and decide the form of the final legislation. We will deliver this letter and your signatures to the chairs of the Senate and House Agriculture Committees as they begin deliberations.
Tell Conferees About the Farm Safety Net You Want: Members of Congress are visiting their districts right now! During the congressional recess that will last the remainder of this month, you can visit their offices, attend their town hall meetings, or call and write the offices of the Senate conferees, as well as of the Republican and Democrat House Farm Bill conferees. Remember that as a citizen and taxpayer your representatives are bound to take your calls and letters and consider your input. This is all the more important for direct constituents of Farm Bill conferees. When you call and write, be sure to make these particular points:
- Adopt the Senate version of the Crop Insurance title (Title XI) because it improves and streamlines the Whole Farm Revenue Insurance program. Importantly, the Senate version recognizes the need to eliminate obstacles for new farmers and the “underserved” (in the Farm Bill this—tellingly—means farmers of color.) To this end, support the House measure that defines “Beginning Farmers” as those who have farmed less than 10 years.
- Adopt the Senate recommendation to link crop insurance eligibility with the performance of adopted conservation practices.
- Make the farm safety net more equitable by closing loopholes in the Commodity Title (Title I) that permit abuse. Specifically, restrict payment eligibility to individuals actually farming; establish an AGI limit of $700,000 for eligibility for commodity payments; and set maximum commodity payments per farmer to $250,000 per year.
Support from UCS members make work like this possible. Will you join us? Help UCS advance independent science for a healthy environment and a safer world.