Corn plants dry in a drought-stricken farm field near Fritchton, Ind., last summer.
Scott Olson/Getty Images
Say the words “crop insurance” and most people start to yawn. For years, few nonfarmers knew much about these government-subsidized insurance policies, and even fewer found any fault with them. After all, who could criticize a safety net for farmers that saves them from getting wiped out by floods or drought?
But consider this: According to a , crop insurance allowed corn and soybean farmers not only to survive last year’s epic drought, but it also allowed them to make bigger profits than they would have in a normal year. A big chunk of those profits were provided through taxpayer subsidies. In fact, crop insurance has grown into the largest subsidy that the government provides to America’s farmers.
Economist from Iowa State University carried out the new analysis. It was commissioned by the , a long-time critic of agricultural subsidies.
“We really saw, in 2012, how the crop insurance program performs,” he says. “It kind of reveals itself.”
What’s revealed, first of all, is the fact that the vast majority of farmers are signing up for a version of insurance that Babcock calls the “Cadillac.” This kind of policy covers two different kinds of losses: lower harvests or lower prices.
Here’s why it’s Cadillac insurance and why it ends up costing taxpayers billions of dollars. Last year, farmers got a poor harvest. At the same time, because corn and soybeans were in short supply, prices soared, which benefited farmers greatly. The insurance, however, paid farmers for the lost yield — but paid them at the higher, post-drought market price. Essentially, farmers reaped the drought’s benefits, yet were protected from its harm.
“Those farmers made more money than they anticipated making when they planted the crop. That’s clear,” says Babcock.
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- Record Crop Insurance Claims Fuel Debate Over Government Subsidies for Farmers (insurancejournal.com)
- Farm Bureau reviews crop insurance with Illinois growers (wqad.com)
- Study: Crop insurance saved 7,450 Nebraska jobs from drought (journalstar.com)
- Crop insurance fight ahead as Senate considers amendment strategy (southeastfarmpress.com)
- Farmers claims net $16B after drought (toledoblade.com)
- AGRIBUSINESS: Swapping Direct Payments For Crop Insurance (whotv.com)
- $16 billion crop insurance payout stirs debate (qctimes.com)
- Crop insurance critical part of risk management plan (southeastfarmpress.com)
