The Risky Business of Agriculture

Posted by on February 6th, 2018 | 0 Comments »

 

During the California drought, citrus farmers lost millions of dollars due to failed crops. Crop insurance and good groundwater management can help farmers manage risks to their crop and incomes from prolonged drought.

Agriculture is an inherently risky business.

The livelihoods of farmers and ranchers are threatened by natural forces – drought, flooding, diseases and pests – and by market fluctuations in the price they receive for their products, the cost of the inputs they buy and the interest they pay on loans for land and equipment.

Farmers are taking a holistic approach to managing these risks, drawing on financial tools and innovations offered by the U.S. government and the agriculture industry.

For farmers, the goal is to sustainably supply food and other agricultural products that global consumers demand, while protecting their livelihoods and contributing to the local and national economies.

“A bad farm economy can adversely impact the entire economy, while a good farm economy can boost the national economy and job creation.”  Representative K. Michael Conaway, Chairman, U.S. House of Representatives Committee on Agriculture, February 6, 2018

This blog focuses on the U.S. crop insurance program, a vital lifeline for farmers, especially during the present period of low commodity prices.

A future blog will examine the technologies and practices farmers use to manage risk, including precision agriculture systems, advanced seed and livestock breeds, crop protection products and improved soil and water management techniques.

Crop Insurance is a Vital Safety Net

The 2014 Farm Bill prioritized risk management through insurance and conservation practices, and reduced the decades-long preference for providing direct payments or emergency loans to farmers when their crops fail or commodity prices drop.

The Federal Crop Insurance Program is a partnership between the federal government and the insurance industry.

Crop insurance policies are sold and serviced by private insurance companies.  Insured farmers receive indemnity payments if their yield or revenue falls below a predetermined threshold. Risks vary by farm operation, so insurance policies are tailored to meet the needs of each farmer.

The U.S. government pays 62 percent of the crop insurance premium; to qualify for the premium subsidy, a farmer must adhere to conservation standards.  In 2017, farmers paid $3.7 billion in crop insurance premiums, according to the National Crop Insurance Services industry group.  (The Hagstrom Report, February 7, 2018)

Today, more than 311 million acres are insured through the Federal Crop Insurance Program, an area roughly the size of California. More than 130 types of crops are insured with a value of more than $106 billion.         (The Hagstrom Report, February 7, 2018)

Building on Success

Farmers and the insurance industry are encouraging Congress to preserve and strengthen the crop insurance program in the next Farm Bill.

Despite a solid track record of success, industry leaders at the recent Crop Insurance Industry Convention emphasized the importance of educating Members of Congress about the success of the program.

“About 100 members of the House [of Representatives] have no record of voting on crop insurance,” said Josh Tonsager of the National Association of Wheat Growers.  His industry is educating members about the program, especially those that do not represent agricultural areas.  (The Hagstrom Report, February 6, 2018)

To learn more about how U.S. farmers are managing risk using crop insurance combined with innovative technologies and practices, read the 2017 Global Agricultural Productivity Report® (GAP Report®), pages 20-34.

Willing to Take The Risk

In his recent testimony to the House Agriculture Committee, USDA Secretary Sonny Perdue observed that despite the risks, U.S. farmers are the most optimistic and resilient people in America. (February 6, 2018)

Less than 2 percent of the U.S. population is involved in farming.  Their willingness to take on the high level of risk inherent in agriculture enables the rest of us to pursue other vocations.

Affordable insurance is an essential part of the safety net that enables farmers to take those risks.

 

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