Even the best-laid plans sometimes go wrong. No one knows this more than a farmer. They can plan out the entire year for how they will harvest a crop, but a single storm or a drop in the market can change everything. It can leave a farmer in financial ruin, and in the worst of cases, it can leave them without the ability to start again the following year.
This is why most farmers purchase crop insurance. It is the one part of the plan that holds together in a crisis. It is a tool that farmers rely upon when things go awry.
This hasn’t always been the case. When crop insurance got its start in the 1930s, it was a poorly run government program and rarely used. The premiums were too high and the coverage area was too limited, which resulted in low participation. Farmers mainly relied on costly ad hoc disaster assistance when natural disasters wiped out their crops, but that required Congress to not only act to authorize this assistance, but to act quickly. It was a clumsy system that didn’t provide any peace of mind to farmers or their bankers, and it was a costly way to operate since Congress was never budgeting for this disaster assistance.
This led lawmakers to rethink the mechanics of the program. In 1980, Congress passed the Federal Crop Insurance Act, which created the successful public-private partnership that remains today where risk is shared among farmers, the Federal government, and private insurance providers.
Premiums are more affordable for farmers through a government discount. Insurance products have expanded to include more crops across the country. Both of these factors have increased participation and broadened the risk pool, which makes the program more actuarially sound. Private companies are servicing the policies and making sure any claims are processed in an efficient and timely manner.
Another part of this success story is that Congress no longer has to worry about authorizing unbudgeted disaster assistance. Further, the current cost of crop insurance is under budget.
With Congress gearing up to write a new farm bill, a central concern for farmers all across the country is that lawmakers will fail to recognize this success story and will create new policy that undermines a farmer’s ability to manage risk.
The farm economy is struggling with net farm income half of what it was four years ago. Planning for the future is challenging enough given these circumstances, let’s not make it harder by eliminating a farmer’s ultimate backup plan when everything else fails.
Luke Sandrock is a junior partner and crop insurance agent at The Cornerstone Agency, Inc. in northern Illinois.