By The Gazette Editorial Board
Most of us have insurance. On our house. Our car. Our health. Our lives. Our businesses.
We buy insurance to protect ourselves from financial, health, property or business disasters — events over which we have little or no control. The essential goal is protection — not an expectation that the policies will be moneymakers for us.
Ditto for farmers. They have similar needs. The majority of grain farmers also take out crop insurance.
Ironically, however, many of thousands of corn producers weathering the worst drought since at least 936 may actually make more money this year than they would have during a normal growing season. And federal crop insurance — heavily subsidized by taxpayers — is one of the big contributing factors, some agricultural economists told The Gazette’s Orlan Love in an investigative story published today on page 1A.
Say what? Farmers looking at a half crop or worse compared to the average year could be better off when the harvest is complete this fall?
“Profits to the corn sector will be high” despite the drought, Iowa State University economist Bruce Babcock told The Gazette. A colleague at the University of Illinois, Gary Schnitkey, essentially agreed. “They would have to have a high level of loss, revenue-protection insurance and not done much forward marketing,” he said.
Windfall for some?
In this scenario, a typical Iowa farmer who raises corn that yields 180 bushels in an average year but only half that much this season could net $200 an acre more this year, according to analysis of federal data by the Environmental Working Group, a major critic of the federal crop insurance program.
Some critics say this amounts to a taxpayer-funded windfall for the farmers. And the bigger the farmer, the larger the windfall. For example, a grower with 1,000 acres planted in corn — not uncommon in this era of large farming operations — could net an extra $20,000 or more. All told, payouts are expected to reach at least $20 billion this year — double the record $10.8 billion paid last year. Some estimates are as high as $30 billion.
Those numbers got our attention. Especially because taxpayers cover more than 60 percent of the crop insurance premiums. At least 26 of the largest growers are getting more than $1 million each in premium subsidies, and more than 10,000 got $100,000 each, according to an analysis of federal data by the Environmental Working Group — one of the major critics of the crop insurance program.
Program has changed
The situation unfolding raises fair questions. Is this protection system gouging the taxpayers? Why should taxpayers be providing any level of subsidy for a farmer’s insurance plan? Or is 2012 just a quirk?
First of all, some background. The crop insurance program — born in the late 1980s on the heels of the Farm Crisis — was changed in 2000. Before then, the coverage was on yield loss, paid out according to a price per bushel that was predetermined in the spring — not the market price after harvest in the fall. Big difference in the final payout, potentially. In 2000, for example, payments totaled about $2 billion.
Food security issue
That said, there is value to the public in helping protect farmers from financial disaster. It’s called food security.
And being self-employed, farmers often pay higher premiums for some other coverage, such as health insurance, because no employer is picking up part of the tab. They also are not eligible for unemployment payments, in contrast to those of us who are employed and covered by a system that is funded by our employers’ contributions.
A farmer’s business, more than most, is at risk from the weather.
Still, it makes sense that no insurance plan should be overly generous in its benefits, especially on the backs of taxpayers. And if the extremes of flooding and drought in recent years continue, this year’s conditions may become more the norm than the rare exception.
And if so, just how much should taxpayers have to stand to keep a farmer in business, especially when 23 million Americans are out of work and millions more are doing with less? We’re not sure what the best answer is.
But this year’s experience should at least prompt a critical review of the crop insurance program by Congress.
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