By Amy Mayer
Corey Goodhue, who farms in Carlisle, Iowa, says crop insurance balances the financial risk his family takes each year. He stores some crops in the grain bins in hopes for a better price.
Congress is working on a new version of the
farm bill. Crop insurance is one of the major programs in the legislation. It has some things in common with other kinds of insurance. But it’s also different from your car insurance.
The first version of the 2018 farm bill has only minor changes to one of the programs most farmers hold dear and what’s widely seen as their primary safety net: crop insurance.
The program covers all sorts of crops, “from corn to clams,” Iowa State University agriculture economist Chad Hart said. But it’s not like the types of insurance most people are familiar with.
“I think most people would say, if they get a car insurance payout they’re almost never whole when it’s done,” explained Corey Goodhue, a corn and soybean farmer in Carlisle, Iowa. “They’re always better off to have not had the wreck.”
Nursery trees and wine grapes are new ventures for Goodhue's family farm, and it's another way to manage risk.
Goodhue said he’d rather have a good crop year and never file a claim, knowing that when he needs the insurance, it’s there.
And that gets to another way it’s not like car insurance: The chances are pretty good that when one driver has an accident and files a claim, most of the others will not so the insurance company will have no problem paying. With crops, it’s more likely many farmers will need a payment at the same time, due to a flood, or drought, for example.
That makes the prospect of insuring something like corn harvests less appealing to companies than insuring cars, and it has the potential to make the policies unaffordable to the farmers they’re intended for.
“It sort of violates one of the harder rules about insurance,” Hart says, “because for the private companies to handle the insurance you need to have that spreadable risk.”
This is where the federal government comes in, subsidizing crop insurance to make it appealing and affordable to both private companies and farmers.
Goodhue said he pays about half his premium and the government picks up the rest.
“When you look at the risk versus the benefit, it pencils,” he says. “If you took that subsidy away, I think we would not buy crop insurance.”
In fact, some farmers wouldn’t make it without crop insurance. The costs of seeds, inputs and equipment add up and rely on returns at harvest.
“The financial risk that we take is enough to bankrupt us, even with the equity we have,” he says.
But with insurance, Goodhue said, he can lock in the best possible price for his grain long before it comes in from the field.
If things don’t go as well as he expected and he can’t meet his obligations, crop insurance lessens the blow.
Sometimes, Hart said, farmers have an expectation that is out of step with the intentions of the program, and tell him they want some money to flow back to them each year.
“So that means we have to spend a little more time discussing with farmers why they expect that,” Hart says. “If you're going to collect on that (insurance policy), that means something bad happened. Either your yields were a little bit lower than you'd hoped or prices were lower than you'd hoped.”
Goodhue also has heard what he calls the “misperception” that farmers are counting on annual payouts from insurance.
“That doesn’t make any sense to me,” he says. “It’s a mechanism that protects us from losing our business. It’s not something that we’re trying to make money doing.”
How it works
Currently, the federal government will split any premium, no matter how big it is.
“Effectively, right now, a farmer can take out insurance on every acre in a county, every year, year after year, and the government will continue to subsidize, on average, about 60 percent of that,” according to Anna Johnson, a policy program associate with the Center for Rural Affairs in Nevada, Iowa. “So we want to introduce some common sense limits onto that.”
Her organization and others that advocate for rural communities and smaller farms proposed a $50,000 cap on premium subsidies. But it didn’t make it into the House Agriculture Committee’s bill.
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