Crop Insurance Reform Must Reflect Climate Realities

There are some good reasons suggesting that we need to reevaluate federal crop insurance policies.

First, the effects of climate change are already being felt by farmers across the country. The extreme weather events of 2011 throughout the United States — including severe floods and drought, and the related economic losses into the billions of dollars — have raised awareness about the vulnerability of agriculture to more extreme and unpredictable weather patterns. Farmers, government agencies and policymakers are now considering how to be better prepared for weather extremes, including reforming how we insure farms against catastrophic losses.

Second, in the recent flurry of farm bill activity sparked by the (now failed) “super committee” process, robust debates began on how to spend public money on supporting the country’s food and farming system. There is every indication that powerful agribusiness interests will agree to reduce, or in some cases eliminate, commodity payments that for decades have guaranteed billions of dollars in revenue for producers of the major commodities (e.g., corn, soy, wheat, rice, cotton, etc.). However, this historic concession will come with a significant tradeoff — namely, the expansion of federal crop insurance payments, essentially continuing the practice of minimizing economic risk for producers of these crops. Farmers need good crop insurance.  The question is how crop insurance is structured, which will impact not only what is grown and how, but whether or not taxpayers are on the hook for what could be expensive and risky policies.

Lastly, all of these debates come at time when federal policy decisions continue to be examined through the lens of budgetary austerity, and farm bill programs are no exception. In the case of crop insurance, which must be considered in light of climate change, the challenge will be to sort out what risk management programs and policies are truly the most economical and sustainable over the long term.

A new briefing, A Risky Proposition: Crop Insurance in the Face of Climate Change by the Institute for Agriculture & Trade Policy (IATP) makes the case that farmers need adequate insurance, particularly in view of increased challenges caused by climate change. But the authors also argue that the support should be coupled with measures that mitigate climate change risk for agriculture and increase on-farm resilience. To do otherwise, they say, is “like offering a home owner a fire insurance policy, but not even requiring the most basic preventative measures, such as smoke alarms or fire extinguishers.”

As the authors note the current system of taxpayer-backed farm insurance isn’t working as well as it needs to. Some highlights:

• Organic operations — arguably among the most resilient farming systems — pay a five percent surcharge on their insurance policies, and any losses they incur are reimbursed at conventional crop prices without consideration of the higher market value of organic products. This disadvantage should be corrected in the next farm bill.
• Of particular relevance to California is the fact that fruit and vegetable producers have fewer options under the federal insurance program.
• Most crop insurance policies favor less diverse operations by making it difficult to insure integrated, multi-crop, mixed crop/livestock systems. Yet one of the most important tools for resilience to climate change and other unpredictable events is to diversify. This practice must be re-examined and revised to encourage and reward diversification.

One potential solution is whole-farm revenue insurance. Our colleagues at the National Center for Appropriate Technology, in a report funded by the USDA Risk Management Agency (available by emailing Jeffs@ncat.org), make the following case:

Whole-farm revenue insurance is not currently the major way many farmers insure their production in the United States. Seventy-six percent of the total liability covered by federally subsidized crop insurance in 2010 was attributed to four crops: corn, soybeans, wheat and cotton. However, whole-farm revenue insurance could provide a more effective way to insure not only specialty crops, but all crop and livestock production in the United States. Rather than the continued proliferation of single-crop based insurance products, whole-farm revenue insurance would likely be a less costly way to provide publically subsidized insurance for farmers. We understand that one key to sustainability in agriculture is expanding crop and livestock diversity.

We believe that critical analyses and innovative proposals such as these by IATP and NCAT should underlie decisions in the next and future farm bills. Solving multiple complex problems such as agricultural risk management, climate change preparedness and economic frugality demands it.