Commodity groups are consistently calling for a “safety net” and see crop insurance as the pillar.
“Today we have no justification for Title 1 of the farm bill as a safety net. We have a safety net – it is crop insurance,” says Bruce Babcock, director of Iowa State University Center for Agricultural and Rural Development.
Farmers pay on average 42% of the premium and taxpayers pick up the remaining 58%.
Babcock states the government’s share actually encourages producers to buy higher coverage than they may need. He argues that crop insurance doesn’t need the revenue protection component because farmers are already using forward contracts at their local elevator or the Chicago Board of Trade to lock in prices.
He suggests offering producers a decoupled risk management payment to buy crop insurance and likely farmers would just buy the basic level. “If a farmer chooses to buy the revenue protection, he wouldn’t be looking to the taxpayer to take on that higher cost. He’d have to put the pencil to the paper and with an eye towards the costs of benefits versus the overall cost,” Babcock states.
Babcock states the only hole left in the safety net of crop insurance comes from a multi-year calamitous drop in market prices whereas input prices don’t drop as fast. If farmers face a two to three year period of high input costs, they could be facing tight margin squeezes. Then loan rates would need to kick in to help out if this occurs.
So tell me what you think. Do you buy the higher level of crop insurance because it works best on your farm? Or because the government pays a larger portion of those costs and it’s not that much more for you to buy up?
Is the crop insurance adequate if there wasn’t revenue protection included within it?
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