Advocates say that with direct payments ending, crop insurance is all that stands between farmers and the unpredictable forces of nature. In the event of ruinous drought or disease, the program automatically disburses aid, often within 30 days, much faster than ad hoc bailouts, which can take more than a year.
Without government-subsidized insurance, financially- hobbled farmers might take land in and out of production, causing food prices to gyrate, according to Tom Zacharias, president of the National Crop Insurance Services, an industry group, who says the insurance costs about two cents per meal.
Farmers’ Tool
In an interview, Brandon Willis, administrator of the USDA’s Risk Management Agency, cited a University of Nebraska study that said crop insurance payments last year supported 20,900 jobs in four farm states. “More and more, crop insurance is the tool farmers rely on,” he said.
With new farm legislation stalled on Capitol Hill, largely over Republican demands for deeper cuts in food stamp spending, the cost of crop insurance is drawing fire from both ends of the political spectrum.
The Environmental Working Group says the insurance encourages farmers to make riskier plantings, secure in the knowledge they will be paid even if the crops fail. The free- market Club for Growth, meanwhile, derides the program as a government handout for millionaire farmers.
Wells Fargo, Ace
Even some beneficiaries are uneasy. “I like to think of myself as an independent who’s willing to take risk,” says farmer Jim Handsaker, 65, of Story City, Iowa. “With insurance, it takes the risk out of it.”
The USDA’s Risk Management Agency determines the policies’ costs and terms, while leaving marketing and claims payment to private companies. That means there’s no real price competition among the 18 approved insurers. The government doled out $1.4 billion last year to cover the administrative costs incurred by the companies, including a unit of Wells Fargo & Co, the nation’s fourth largest bank, Ace Ltd. of Switzerland, which reported a $2.7 billion profit last year, and Great American Insurance Co., a unit of the Cincinnati-based American Financial Group.
Handsaker, a genial fan of the broadcaster Rush Limbaugh, farms about 3,400 acres of corn and soybeans with his brothers and sons. He says he paid about $70,000 to $80,000 in crop insurance premiums last year. The taxpayers paid even more -- since an average of almost two-thirds of premium costs are paid by the government.