The Hagstrom Report

Agriculture News As It Happens


Crop insurance payments reached new high in 2011


In a demonstration of the up-and-down nature of the crop insurance industry, payments to farmers for crop losses in 2011 have totaled $9.1 billion so far, the highest in American history, according to charts released by the Agriculture Department Risk Management Agency.

About 81 percent of claims have come in, according to RMA, with the total surpassing a record $8.67 billion paid in 2008.

Crop insurance companies have paid out a total of $27 billion in indemnities since 2008, according to National Crop Insurance Services, an industry research group. The relatively low payouts in 2009 and 2010 have given the industry an image of high profitability, but the payouts in 2008 and 2011 reflect the industry’s obligations in a period of high losses.

“Without crop insurance in place, those billions in damages would have fallen onto the laps of lenders, input suppliers, marketers, land owners and farm families, just as the economy was spiraling downward and unemployment was soaring,” said Keith Collins, a former USDA chief economist and chairman of the federal crop insurance board who is now a consultant to NCIS.

Premiums paid by farmers and the government have skyrocketed in recent years. And, as crop insurance prices rose, the cost of insuring a more valuable crop has risen along with it.

The government pays about 65 percent of the total cost of the crop insurance program. Congress, through the 2008 farm bill, and the Obama administration, through the renegotiation of the standard insurance agreement, cut back on government expenditures by a total of $12 billion, according to the industry.

As Congress prepares to write a new farm bill, industry officials have said they are worried about further cuts.
Tom Zacharias

Tom Zacharias
“Two out of the last four years have seen the largest indemnity payments in history, all while the crop insurance industry was asked to do more with less,” NCIS President Tom Zacharias said in a news release. “Faced with decreasing federal funding, record payouts and high crop values, it is imperative that Congress not weaken the crop insurance infrastructure further as it writes the 2012 farm bill.”

The high level of indemnity payments for 2011 resulted from droughts in the Plains, flooding along the Mississippi River and freezes in the South.

One out of every four dollars of the 2011 payments has gone to farmers and ranchers in Texas, who have received $2.4 billion in indemnities to date, NCIS said in its analysis of USDA data. For every dollar Texas farmers paid into insurance for their 2011 crops, approximately $2.23 was paid out, NCIS added.

The next hardest hit state was North Dakota, with $1.5 billion in damages, followed by Kansas, South Dakota and Minnesota.

Together, these five states account for 63 percent of the damages paid nationally, the group said. Corn, cotton and wheat accounted for 70 percent of the losses, followed by soybeans and grain sorghum.