As congressional debate on the next farm bill gathers steam, farmers in Minnesota are calling for changes to the crop insurance program, the bill’s largest agricultural program. A new report from the Land Stewardship Project argues that the current version of the program favors bigger farms and places an undue burden on taxpayers.
The Minnesota-based organization is calling for a cap of $50,000 on crop insurance payments per farm, and for crop insurance eligibility to incorporate standards of conservation, good stewardship, and crop diversity. The group released the report, “Crop Insurance: A Torn Safety Net,” on Monday with a rally at the offices of NAU Country Insurance, a top crop insurance company, based in Ramsey, Minnesota.
Federal crop insurance is administered by the USDA’s Risk Management Agency. When the program was established in 1938, it was intended as a safety net for farmers, so that one bad season or damaging weather event wouldn’t bankrupt a farm. The program is administered by 15 crop insurance companies, which receive reimbursements from the federal government for administrative costs. The government also pays, on average, around 60 percent of farmers’ insurance premiums.
Unlike other farm programs, there are no limits on how much each farmer can receive in crop insurance payments. Over time, that has led to the biggest farms collecting a greater percentage of crop insurance payouts. In 1997, farms grossing more than $1 million collected 12 percent of crop insurance payments. By 2015, that share had grown to 33 percent.
Critics of the program also say that crop insurance has incentivized farmers to plant the insurance-eligible crops that are most heavily subsidized, like corn and soy, and to manage the crops less diligently, knowing than an insurance payout would cover major losses.
Farmers cited in the report acknowledge that crop insurance is important for keeping farms afloat, and that it provides a vital service. But the lack of a payment cap gives an advantage to some farmers over others, they say. Randy Krzmarzick, a corn and soybean farmer in Brown County, Minnesota, calls the lack of payment limits “unnecessary” and “wasteful.” He says, “It allows the most aggressive farm business operators to outbid beginning farmers or small- and mid-sized diversified farmers competing for land to rent or buy.”
One way that favoritism has played out is by keeping smaller farmers from accessing land. “Crop insurance gave the largest farmers a protection tool to go out and rent land at the very highest dollar per acre,” says Paul Sobocinski, a farmer near Wabasso, Minnesota, who has received crop insurance payments for corn and soybeans. “It allowed large farmers to position themselves financially, to pay maximum dollars for rent, and have federal crop insurance to back their play.”
The report also notes that crop insurance companies have benefited enormously from the program’s current structure. Insurance companies make deals with the federal government that allow them to distribute the cost of insuring higher-risk cases. As a result, since 1993, crop insurance providers have reported $10 billion in gains while the federal government has reported $70 million in losses.
There has been steady consolidation among crop insurance companies in recent years, leading to a few companies dominating the sector. In 2015, the top two companies controlled around 38 percent of the market.
Crop insurance companies have also worked alongside large farms and farm trade organizations to lobby Congress about maintaining the crop insurance program within the farm bill. Even as crop insurance companies have grown in power and influence, farm income has declined steadily over the past several years. This year, farm income is expected to reach its lowest level since 2006.