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The Truth Could Set Us Free; If They’d Print It

February 2013

The ongoing discussions about resolving our national debt continues to provide plenty of fuel for those who wanted to torch a key aspect of farm policy, crop insurance.

The New York Times came out swinging against crop insurance – again – with a January 15 article that led “the worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields” adding that the “staggering” cost of the program was drawing attention from budget cutters.

Yes, indemnities could possibly hit $16 billion, but all of those costs will certainly not fall on the laps of taxpayers. What was missing from the article was mention of the more than $4 billion spent by farmers to purchase crop insurance as well as losses that will be realized by the 16 private sector companies who underwrite policies.

Dallas Smith, Deputy Under Secretary, Farm and Foreign Agricultural Services, United States Department of Agriculture, 1993-1999, submitted a letter-to-the-editor, pointing out:

“Your article about crop insurance indemnities missed several essential points. For 2012, farmers will pay about $4.1 billion in premiums for crop insurance coverage. With crop insurance, farmers only receive an indemnity when there is an insurable loss. There is no ‘direct’ cash subsidy.

“Previous to the current-day crop insurance program, response to agricultural weather-related exigencies was in the form of disaster legislation. In the past, the aid from disaster packages could take up to 18 months to reach the farm community. Not in all cases, but many drought-stricken farmers receive indemnity checks within weeks of filing a claim. With the current program, farmers, crop insurance companies and taxpayers all share in the cost of the program.

“As we have observed from the experience of Hurricane Sandy, disaster aid can be highly uncertain and slow in coming. Crop insurance is a better solution.”

The New York Times article was picked up by the Minneapolis Star-Tribune, which sparked a quick response from Greg Schwarz, a farmer from Le Sueur, Minnesota:

“The reason why crop insurance enjoys such broad political support in Congress while receiving the endorsements of nearly every major commodity group is simple, because it works. Your recent article about crop insurance indemnities, “Crop Insurance Could Cost $16 Billion,” (1/15/13) missed many of the key reasons why crop insurance is good for farmers, and taxpayers alike.

“First, prior to the emergence of crop insurance, Congress regularly turned to taxpayers when disaster struck, tapping them for $45 billion in supplemental disaster assistance from FY 1989 to FY 2001. The current public-private partnership that is our modern crop insurance system was designed to minimize taxpayer risk exposure and speed assistance to farmers when they suffer loss. Private insurers help shoulder the loss in bad years and have a sophisticated infrastructure to deliver assistance to farmers when they need it most.

“Second, farmers paid $4.1 billion out of their own pockets in premiums last year to purchase crop insurance coverage. In years when major disasters don’t strike – and that’s the majority of years – crop insurance companies and the government earn underwriting gains from these premium investments. These gains have added more than $3.93 billion to federal coffers, and help offset losses in years when natural disasters strike.

“The health and vitality of the rural economy has been one of the few positive economic trends over the last few years. A strong, viable crop insurance policy, which has helped rural America recover from back-to-back natural disasters in 2011 and 2012, is part of the reason behind that success.”

Not to miss an opportunity to chime in, a January 20 Washington Post editorial also let fly a salvo against crop insurance and the farmers who purchase it. The editorial repeated the misstatement contained in the earlier New York Times article, stating “The government’s total cost for crop insurance could hit nearly $16 billion for 2012, an all-time record,” and then continued by calling crop insurance “corporate welfare,” despite the fact that it is purchased by farmers with their own money.

Tom Zacharias, president of the Overland Park-based National Crop Insurance Services, responded in kind:

“It is unfortunate that the Post’s recent crop insurance editorial misled readers into believing the total cost covering the record drought losses of 2012 will fall solely on taxpayers’ shoulders. That would certainly be the situation under the old paradigm of ad hoc disaster legislation. Under today’s crop insurance system that is simply not the case because farmers and participating insurance companies are also helping to shoulder the burden.

“First, farmers contributed $4 billion of their own money for crop insurance premiums. Second, participating insurance companies will lose money in 2012 because total payouts will exceed premiums collected and the companies share in the losses. The final cost is still unknown, though it could be in the billions of dollars.