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A Different Kind of Urban-Rural Linkage

A March presentation on the Farm Bill by Adam Warthesen of the Minnesota Land Stewardship Project started with a pop quiz. Match the projected 10-year farm-program expenditure with its name. The options were as follows:

$771.6 billion A.  Conservation Support
$90.1 billion B.  Crop Insurance
$67.3 billion C.  Nutrition and Food Support
$65.7 billion D.  Commodity Program

When most Americans think about the Farm Bill, they don’t think about crop insurance.  However, the cost of crop insurance to taxpayers has more than doubled in the past decade.  Brian DeVore reports that today it is ($90.1 billion) second only to nutrition and food support programs ($771.6 billion).  The cost of commodity subsidies ($67.3 billion) and conservation support ($65.7 billion) come in a close third and fourth.

While most coverage of the crop insurance issue has focused on rural audiences, those of us living in cities should be concerned that the sources of our food security may be under increasing threat.  Anyone concerned about the social justice and public health implications of rising food prices, diminishing farm yields, climate change, and escalating land speculation should know about how the ever-growing cost of crop insurance for US taxpayers is working against our health and social equity goals.

A Short History of US Crop Insurance

The United States Department of Agriculture’s Risk Management Agency runs the federal crop insurance program.  Started in 1938, the program was the government’s response to the droughts and Dust Bowl of the 1930s.  Its goal was to protect the profitability of farming so that the country could support the population of farmers it needed to grow food and fiber.

The 1990s were a decade of big changes to the US’s federal crop insurance program.  Many of these changes set the stage for the problems farmers identify with the program today.  For example, the USDA stopped requiring that farmers have soil conservation practices in operation before they can collect insurance indemnities.  Also during this period the subsidized percentage of crop insurance premiums started its rise from 25% to today’s subsidy rate of nearly 60%.  This period saw the crop insurance innovation of coverage for revenue aside from crop yield.  Today, crop insurance for farm yield covers only 17% of US farmland.

By 2010, federally subsidized crop insurance covered 255 million acres of land, three-quarters of which were growing corn, cotton, soybeans, and wheat.  As a Congressional Research Service report on this issue explains, “insurance policies are sold and completely serviced through 16 approved private insurance companies.  The insurance companies’ losses are reinsured by USDA, and their administrative and operating costs are reimbursed by the federal government.”  In 2010, the USDA capped subsidies to companies issuing crop insurance at $1.3 billion.  Over 10 years this cap adds up to a $6 billion subsidy reduction, enough to make insurers balk at the proposal, but not enough to damage their profitability, or the profitability of the program.

United States Department of Agriculture

Agricultural Land Grabs

Insurance for farm revenues creates incentives for some of the largest farmers to leverage their size and personal yield histories into insured guarantees on revenue for new land that they rent or purchase.  Our current crop insurance policies allow this, regardless of the suitability of that land for farming.  This incentive to grow has led to a rural land grab where rental rates and land prices have snowballed.  One major effect of this skyrocketing in the cost of farmland is increased pressure for farm consolidation and dramatically increased financial barriers for new farmers.

Climate Change

Unsurprisingly, decoupling soil conservation from crop insurance has also led to a pattern of increases in both environmentally unsustainable farm practices and indemnity payouts resulting from unpredictable droughts and floods.  For example, farmers collected a record high $10 billion in such payments in 2011.  At the same time organic farmers who presumably use more environmentally sustainable food growing practices are currently required to pay a five-percent surcharge on crop insurance and reduced payments in the event of a crop failure.

Moral Hazards  

By decoupling soil conservation from crop insurance, the USDA has also created an agricultural moral hazard, a term used to describe a tendency to take undue risks because the costs are not borne by the party taking the risk.  Land that is not suitable for production can now be profitably farmed, even as a yield failure. Insurance guarantees income regardless of yield.  When the income insurance only costs the farmer 40% of the policy premium because taxpayers subsidize the rest, there are profit incentives to knowingly planting to fail.

The Bottom Line

When food and nutrition advocates think about the farm bill we are accustomed to focusing on increasing funding for nutrition and food support programs and decreasing funding for commodity subsidies.  In reality, the federal crop insurance programs costs significantly more than the commodity program and leads to many of the same problematic food system outcomes – land and business consolidation, support for corporate farming rather than small farmers, high prices for crops we consider food, and environmentally unsustainable farm practices.  The National Corn Growers Association reportedlyexpressed willingness to give up direct payments from commodity subsidies in the farm bill.  They can now hedge their bets on profit with crop insurance and stay profitable.  All while the federal government would appear to be responding to our calls for reduced corn subsidies.

This farm bill season provides both urban and rural taxpayers and eaters with an opportunity to ask elected officials harder questions about crop insurance.  Should taxpayers be subsidizing the insurance of farm profits, not farm yields?  Why should crop insurance policies be based on the historic productivity of the farmer and not the land? Why can’t we return to requiring that insured cropland be conservation compliant?  By raising these and similar questions, food advocates can help to create farm policies that better support the environment, health and democracy.

 

Kimberly Libman is a doctoral student in environmental psychology at City University of New York and a research fellow at Corporations and Health Watch.  

 

Image Credits:

1. formalfallacy via Flickr.

2. meironke via Flickr.