Basic premises that we must agree on before you read this post:
1. Food security is important, both for America and for the world.
2. Food security depends on farmers being able to make enough money to farm the next year.
According to a recent study published in the Journal of Agricultural and Resource Economics (JARE), U.S. taxpayers spend less when the government discounts farmers’ crop insurance premiums instead of relying on unbudgeted disaster aid packages.
When farmers have a major loss, often due to weather extremes like drought or tornadoes or hail storms, it benefits the American people to help those farmers make enough money to survive to farm another year (see food security premise above). Before crop insurance, the U.S. government would hear about the major loss and Congress would often pass a disaster aid package.
This would be similar to what happened after the major hurricane events we’ve seen lately. The disaster happens, the loss is extreme, the government steps in to help.
However, those unbudgeted needs are a strain to the national financial situation and aren’t ideal. Also, political games can impact the timely deliver of the disaster programs and aid.
When the government pays a portion of the farmers’ crop insurance premium, it is a budgeted amount that provides farmers an incentive to protect themselves.
Federal crop insurance has become a pillar of U.S. farm policy in recent years and is being considered by policymakers around the world. As it stands, farmers collectively spend $3.5 to $4 billion from their own pockets to purchase insurance protection a year.
Since crop insurance’s rise, annual disaster bills, which are fully funded by taxpayers and used to be the norm, have been largely reduced. That’s been welcomed news for farmers since the disaster bills of the past were often politically motivated and were slow to deliver relief.
Congress is debating the farm bill right now, and this – among other topics – is a very important nuance to note. When farmers have access to a working crop insurance program, they are partnering in the costs of the disaster losses. Without a working crop insurance program, farmers turn to the government and tax payers fully fund the cost of the loss.
This study uses mathematical, peer reviewed data suggesting that it will be important for lawmakers to recognize the reduced insurance participation and increased likelihood for ad hoc assistance associated with the proposals being championed by farm policy critics during the ongoing Farm Bill debate.
Thank you to our source, National Crop Insurance Services.
ICGA/ICMB Marketing Director