Attendees at last week's USDA Outlook forum couldn't help but notice the silence. Yes, U.S. agriculture just survived its near-death experience with the worst drought since the 1950s, but unlike comparable disaster years of 1983, 1988 and 1993-- and scores of localized weather losses -- there's been no uprising or revolt from the nation's crop farmers calling for supplemental aid. Ditto 2011, when Texas and much of the Plains experienced their own modern Dust Bowl.
That calm should be a shock to observers, since Congress has a history of writing free disaster checks to farmers -- especially in election years. It voted 42 separate times between 1989 and 2011 to cover $70 billion in farm disaster losses, according to the Congressional Budget Office.Crop insurance was supposed to kick that habit -- and encourage growers to partially finance the cost of coverage with premiums rather than rely on free handouts.
Private crop insurance companies have already written checks for $14.7 billion of indemnities on the 2012 crop -- by far the largest claims in federal crop insurance's 80-year history.Reimbursement has come in time to finance seed, fertilizer and rent for the 2013 crop -- rather than the two-year delays common under most free disaster programs. Instead of a budget target, many industry supporters say that's proof that the federal crop insurance program delivers what its architects first promised two decades ago.
"If you give them a good value proposition, farmers will vote with their pocketbooks," said Ken Ackerman, administrator of USDA's Risk Management Agency during the 1990s when the program morphed from a yield-only plan to a true revenue protection policy.
Ackerman notes that signup for federal crop insurance has ballooned threefold in the interim, from 84 million acres in 1993 to 282 million acres last year. That's coverage of more than 90% of the crop acres for major crops, he said.
Other former Risk Management Agency officials point out that countries like France have spent a century trying to design a workable national crop insurance program, with only 30% farmer participation to show for their efforts.
Countries throughout Latin America and Europe regard the U.S. crop insurance program with envy, said David Hatch, a former RMA associate administrator. They don't have the yield data on individual farms to rate risks, nor the financial backing from governments to implement similar programs.
The problem is without crop insurance, boom-bust ag cycles impoverish farmers and make it far more challenging to feed the world's rapid population growth.In Argentina, land values and rents typically collapse after weather disasters and only those operators with deep cash reserves are left standing.
It was the aftershock of the great flood of 1993 that first persuaded U.S. policymakers that yield-only "crop insurance wasn't up to the job," Ackerman recalled. Instead, pilot programs in 1994 implemented the first version of what is today's Revenue Protection policy. It guarantees a dollar value per acre of coverage based on harvested yield and the higher of a planting or harvest price. That gives growers "replacement cost" coverage so they have courage to forward price or replace feed they would have grown for their own livestock herds.
What would happen if Congress decides to rescind Revenue Protection policies in the future, to shave costs and meet budget targets? Crop insurance companies argue requests for disaster aid would be resurrected every time a major flood, drought or other pestilence hit U.S. crops, so savings would be illusory.
Denny Everson, a 40-year veteran of ag lending with 1st Dakota National Bank in Yankton, S. D., is blunt. Ag lenders would need bigger federal loan guarantees to stay in farming without Revenue Protection coverage. "If either one of those programs are cut, a lot of the young people I've been gratified to see enter agriculture in the last 10 years will be out of business," Everson said.
So a good question to crop insurance critics would be, why risk it?
Marcia Taylor on Twitter@MarciaZTaylor.
Marcia Taylor can be reached at email@example.com
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