History demonstrates the importance of a farm safety net

If my family had kept the farm, I would have been a fourth-generation farmer of a grain operation. But they couldn’t.

The ’80s were not kind to us, and my family made the difficult decision to exit the business. They were not alone. Some statistics show public farm auctions numbered around 500 a month during the darkest days of the decade, with hundreds of thousands of farmers defaulting on their loans. Nearly 2,000 banks failed or received assistance through the Federal Deposit Insurance Corporation between 1980 and 1994, which is more than any other period since the FDIC was created.

Watching my family and neighbors go through this kind of torment made an impression. It’s one of the reasons I am passionate about what I do today. It is a high priority for me as an agricultural banker to do everything I can—not only as a provider of capital and traditional banking products, but a provider of expertise and counsel—to help farmers make the right decisions about their operations. I want them to be prepared for a crisis.

Fortunately, for farmers today there are more tools available to manage the risky business of farming than there were a few decades ago. One of those tools is crop insurance, which has improved significantly through the years to become one of the key pieces of the farm safety net. Farmers have to invest so much money to grow a crop that they rely on banks for operating loans. Banks would have a hard time making those loans without assurance farmers would have a way to pay it back if a natural disaster struck. Crop insurance enables everyone—from the farmer to the banker—to plan for those disasters.

Additionally, crop insurance is structured in such a way that spreads risk across a large and diverse pool of participants so that the impact of losses from a disaster is minimized. That’s because it is widely available and affordable for producers all across the country regardless of their farm size. Without this kind of farm safety net for all of our farmers, large production losses could set in motion a series of events reminiscent of the 1980s when farms failed and banks were stressed to the point of shutting down.

Therefore, it’s critical crop insurance remain intact. Something that seems harder and harder to do in today’s political environment where opponents are determined to destroy the one thing farmers can count on during tough times.

We saw their work in full force during the latest budget agreement that was negotiated at the last minute and included cuts to crop insurance. Thankfully, the agricultural community responded in equal force and demanded the cuts be reversed. Lawmakers are expected to address this provision in the next omnibus spending bill.

We do not want to repeat the mistakes of the past where harsh economic conditions combined with an inadequate safety net caused producers to leave the farm altogether. Right now, we have farm policy in place that encourages sound risk management practices and helps farmers to position themselves for the future.

In the midst of the crisis as he signed the 1985 farm bill, President Ronald Reagan said, “This country is nothing without the farmer, and those who work the land have the right to know that there’s a future in farming. Their children have the right to know that they’ll still be able to work the family farm generations from now and make a decent living.”

By then it was too late for my family and countless others to continue farming, but if we’re smart, we’ll learn the hard lessons from the past so future generations can continue.

Indeed, we are nothing without farmers. And, they can’t survive the vagaries of the business without sound farm policy.

Nate Franzen is the President of the Agribusiness Division at First Dakota National Bank in South Dakota. He has worked in agricultural banking for more than two decades.

Crop insurance helps farmers and ag lenders manage risk

Weather anomalies have challenged farmers since the earliest days of agriculture. A flood, hail storm or drought can leave a farmer without a harvestable crop at the end of the season. In Central Kansas, producers have been fortunate in the fact that they have not had to endure multiple years of drought or poor production. However, neighboring areas such as Southwest Kansas, Oklahoma and Texas and areas further west have not been so lucky. There is no doubt that crop insurance has helped some farmers stay in business through the tough times.

The United States has learned in hindsight that providing retroactive disaster relief is not only destabilizing for farmers but expensive for taxpayers. Prior to our current crop insurance system, it could have taken months if not years for farmers to receive relief payments following a disaster. While the support did not go unnoticed, there were many instances when the payments came too late to save a farmer from insolvency.

It is a fact that strong farm policy and support for crop insurance goes beyond the farmer, not only benefitting rural America but consumers as well. In the 2014 Farm Bill, crop insurance was recognized as the primary risk management tool for farmers, shifting a good share of the risks associated with farming away from the American taxpayer.

The key to a viable crop insurance system is the public-private partnership that makes it the success it has been. The private sector sells and services crop insurance policies and farmers pay premiums and have deductibles, just like other insurance policies. To incentivize farmers to buy crop insurance, the government partially discounts premiums to ensure that coverage is affordable, available to everyone, and economically viable.

Lenders also play a role in encouraging farmers to make informed decisions about managing their operating risk. At Central National Bank, we are agriculture lenders as well as licensed crop insurance agents. We encourage all of our farmer customers to protect their investment with crop insurance and as a financial institution, we may even be able to offer better loan terms to a producer that implements a solid risk management program.

It is important to keep in mind that crop insurance is a risk management tool, not a profit center. Some have charged that farmers would rather collect a crop insurance check than a good harvest. Nothing is further from the truth. Simple math suggests that “playing the crop insurance game” is not a sustainable business plan. In 10 years of working with producers, I’ve yet to meet anyone who would rather collect a crop insurance check than harvest a good crop.

As we enter into a period of declining margins, it will be important for producers to review all aspects of their operation, including risk management programs. Recently, the farm economy has seen double-digit declines in net farm income as well as increases in the number of short-term operating loans. Having access to viable risk management tools will not necessarily add to the bottom line, but it is important for producers to utilize tools such as crop insurance to protect revenue streams through a possible prolonged downturn in the farm economy.

Not only does a well thought-out crop insurance plan speak to a producer’s management skills, but crop insurance also provides a backstop so producers are able to meet their financial obligations. Ensuring farmers have access to affordable, viable crop insurance options is not only critical for the farm business, but it will certainly impact future ag lending decisions in terms of assessing operating risk for loans.

Aaron Gasper is an agriculture and commercial lender at Central National Bank in Salina, Kansas.

This drought just isn’t giving up, but farmers aren’t quitters

California’s central valley has been called America’s salad bowl, but honestly in the last four years, it looks more like a dust bowl than a vegetable garden. The historic drought has caused many California farmers to pay prices for water – just to keep their orchards alive – that most Americans would find unfathomable.

Almond, stone fruit, grape and citrus owners once paid roughly $70 per acre foot to ensure that their long term investments had enough water to remain healthy and productive. That cost is now as much as $1,300 per acre foot – about an 1800 percent increase – all while the retail value of their crops has risen very little in comparison.

Estimates are that 170,000 jobs in Kern County alone are directly connected to farming and harvesting. But the number of jobs connected to supporting those farmers, growers and harvesters is around eight times that amount. Crop insurance acts as an underpinning for all of these important jobs and productivity that represent a sizable portion of our economy.

In the past, a wide scale disaster of this magnitude would have triggered a series of very expensive ad hoc disaster bills paid for exclusively by taxpayers. But there has not been a single disaster bill passed even though this drought refuses to release its grip. And that’s because nowadays, farmers are able to purchase the protection and peace of mind of crop insurance.

Crop insurance is a public private partnership whereby farmers purchase policies with their own money, and the policies are sold and serviced by participating companies and agents.

Clearly, the success behind crop insurance is that it’s affordable, viable, and available. Unlike other forms of insurance, any farmer who wishes to purchase crop insurance can do so, regardless of the size of their farming operation or how many years they may have under their belts farming.

Farmers prefer crop insurance because it allows them to pay a premium to help remove some degree of risk from a very volatile business. Twenty years ago, many farmers had never heard of crop insurance. Today, crop insurance protects more than 90 percent of planted acres nationally.

A crop insurance check will never come close to what a farmer can get from a good harvest. But it does offer farmers some peace of mind so that they know that if Mother Nature gets ugly, they can bounce back and be in business again next year. That’s good for consumers, who don’t want their food supply disrupted, and good for the rural economy as well.

When I began this career 13 years ago, I was surprised that bankers were making loans without the guarantee of crop insurance. Obviously, that doesn’t happen much anymore. In fact, it’s very difficult for farmers to get a loan at all without a crop insurance policy in hand.

Of course, crop insurance has its critics who try and make the program sound like another federal handout. Nothing could be further from the truth. In fact, when farmers purchase crop insurance, they receive a bill, not a check. And only receive a payment if they incur a loss greater than a deductible amount chosen a year in advance. Just like homeowners insurance, farmers buy crop insurance hoping they won’t have to use it, but rest better at night knowing they are more secure.

Yes, this drought has been historic and is about as stubborn as a drought can be. But farmers are hardworking, honest and smart businessmen and women who have armed themselves with the best tools possible to weather this storm. And crop insurance has ensured that California’s central valley will remain America’s fruit and vegetable garden for generations to come.

Todd Snider is a crop insurance agent, Kern County Farm Bureau director, Bakersfield Homeless Center director, and resides in Bakersfield.