Advanced Search
October 7, 2024
The federal crop insurance program (FCIP) offers subsidized crop insurance authorized by the Farm Bill to protect producers from the financial risks inherent to agriculture. In recent years, the cost of the program has increased substantially, drawing concern from federal spending watchdogs and nonprofit groups alike. The U. S. Department of Agriculture (USDA) predicts that under a scenario with continuing emission trends (and subsequent warming), the cost of the program could increase by an average of 22%.
Although federal spending on these subsidies continues to increase, insurance is still outside the grasp of many farmers with small and diversified operations that grow a combination of different crops.
Federal crop insurance is a crucial component of the farm safety net that keeps farmers planting year after year. But many groups, including the Natural Resources Defense Council and American Farmland Trust, contend that policy reforms, such as the COVER Act and Save Our Small Farms Act of 2024, are necessary to help farmers adapt to changing temperatures and worsening natural disasters, improve soil health, and reduce federal costs.
In 1938, in the wake of the Great Depression, Congress authorized the first version of FCIP. The program was largely undersubscribed for decades. To spur participation, Congress passed the Federal Crop Insurance Act of 1980 (P.L. 96-365), which introduced premium subsidies and allowed private sector companies to sell policies. Today, farmers purchase federal crop insurance from Approved Insurance Providers (AIPs) for a reduced premium, with an average 60% subsidized by USDA. In addition, USDA compensates AIPs with delivery payments to cover administrative and operating costs of the program, plus their risk through reinsurance agreements. Reinsurance provides coverage for insurance companies to avoid overexposure to large disasters.
In 2022, the program’s total cost was $17.3 billion, about $3.7 billion (or 22%) of which went to AIP reinsurance. A Government Accountability Office study reported that lowering delivery payments and renegotiating reinsurance agreements could save hundreds of millions per year while still incentivizing companies to partake in the program and providing the same aid to farmers. However, a 2014 Farm Bill (P.L.113-79) provision prevents changes to FCIP reinsurance agreements, resulting in a stalemate for government savings on the program unless this provision is changed upon reauthorization.
Weather events that decrease crop yield—including drought, excess precipitation, and extreme temperatures—are among the largest economic risks that farmers face. Indemnities for weather events (the payments made by insurance companies to farmers when they experience a loss) totaled $118.75 billion between 1995 and 2023, accounting for nearly 75% of total crop insurance payouts. With increasingly more frequent and severe floods and droughts occurring as a result of shifts in climate, farming will only become riskier.
Severe hail storms in Texas and the Midwest, tornadoes and hurricanes in the Southeast, and 15 other billion-dollar disasters hit the United States in 2022. The National Oceanic and Atmospheric Administration calculated the crop losses of these events to be around $21.4 billion, making 2022 the third-costliest disaster year on record for crops. Only about half of these losses were covered by the federal crop insurance program.
Diversifying crop stock is a promising method for farmers to increase agricultural output, reduce net greenhouse gasses, improve soil health, and reduce overall risk to disasters. However, developing insurance products for operations with multiple crop varieties is often more difficult.
In 2022, 62% of farms that grew principal commodity crops—corn, soybeans, cotton, and wheat—were insured through FCIP. By comparison, the program only insured 9% of farms growing “specialty crops,” which legally refers to “fruits and vegetables, tree nuts, dried fruits and horticulture and nursery crops, including floriculture.”
Most crops are insured on an individual basis, which drives this disparity. Insurers calculate coverage using Actual Production History (APH), which is determined by the average amount of a crop produced on a specific plot of land from the past ten years. If this data is not available, due to the crop just being introduced or the farmer just starting out, the insurer will substitute a percentage of the county’s average yield, or “T-Yield,” for each missing year. The yield is then multiplied by the selected coverage level to determine the value of the potential indemnity. T-yields can be as low as 65% of the county average, effectively lowering the amount of the crop available to be insured and the value of the payout. Farmers must use T-yields for four years until they can replace the number with the actual yield data for their plot.
This structure creates a barrier for farmers looking to diversify their operations. Many farmers practice mono-cropping, which can denigrate soil through tillage and reduce its nutrient content, as this minimizes their financial risk within the current FCIP framework. Conversely, USDA recognizes crop diversity as a tool to manage climate-related risk.
To better address these issues, Congress introduced the Whole Farm Revenue Protection (WFRP) program in the 2014 Farm Bill, allowing farmers who have diversified operations to access credit for their entire farm, regardless of crop combinations.
Unfortunately, participation in WFRP is low, as only 1,934 policies were sold in 2021, compared to the program’s peak at around 2,800 in 2017. Many farmers have trouble finding AIPs who offer the program, or run into significant red tape when trying to access the product. In 2023, USDA’s Risk Management Agency (RMA) announced new changes to make WFRP more effective and streamline record-keeping practices. RMA also replaced old expense reporting procedures that often required reporting of every sale made, which can be burdensome for diversified producers who rely on smaller and more constant transactions to sell their product.
Farmers who purchase crop insurance stay in business an average of seven years longer and have a 70% lower chance of exiting the market than their uninsured counterparts. However, only 13% of all U.S. farms participated in FCIP in 2022. Due in part to farm consolidation—the size of farms increasing while the number of farms decreases—the majority of farmland acres were insured.
In fact, farms enrolled in FCIP have larger annual sales and acres than the average crop farm, which could be attributed to differences in production practices. But, the proportion of large farms purchasing crop insurance is ostensibly larger than that of farms with lower acreages.
Small, family-owned farms make up 89% of all farms in the United States, although they purchase insurance at much lower rates. Most small family farms are at high financial risk of failure, based on their profit margin. Crop insurance has shown to be an important part of keeping farms afloat, and would help small farmers mitigate their financial risk.
Cover crops are grown to bolster soil health rather than harvested for consumption. They are planted when arable land is not in use, typically using a mix of grasses, legumes, and cereals. Cover crops improve soil fertility by fueling beneficial microorganisms and fungi with biomass, protect the soil surface from erosion, and allow the soil to absorb more moisture during intense rain storms. These qualities make the soil more resilient to both droughts and floods.
Farmers who adopt these practices often run into issues with FCIP guidelines, causing undue complexity for producers. For example, RMA publishes Good Farming Practices (GFPs) that must be met to qualify for up-front assurance of coverage. According to current guidelines, any practice that reduces yield is not a GFP. However, some sustainable farming practices like cover cropping may temporarily reduce yields or have an unpredictable effect on yields before stabilization. Perennial grains, which do not require tilling every year, can also promote soil health, but they are not eligible for federal crop insurance because the initial yield is lower than that of annual grains.
USDA’s Natural Resources Conservation Service also issues guidelines on cover crop termination, which must be followed if the practice is to be considered a “cover crop” underneath federal statute. These guidelines are designed to minimize risk to the crops later grown for harvesting. However, they apply to broad regions, leaving little flexibility for the needs of individual farms, and lack of compliance can adversely affect the insurability of a crop.
In June 2024, Representative Jahana Hayes (D-Conn.), along with Senators Richard Blumenthal (D-Conn.) and Chris Murphy (D-Conn.), introduced the bicameral Save Our Small Farms Act of 2024 (S.4472/H.R.8611). The Act would improve WFRP and disaster assistance to streamline revenue history requirements for small farms, allow insurance policies for farms that use crop rotation, and provide coverage for small specialty crop farmers who sell into local markets when they experience adverse weather conditions. The WFRP Improvement Act (S.2598), introduced by Senator Sherrod Brown (D-Ohio), would further streamline FCIP processes for small and diversified farms.
Representative Sean Casten (D-Ill.) introduced the Conservation Opportunity and Voluntary Environment Resilience Program (COVER) Act (H.R.3478) in May 2023, which provides a $5 per acre crop insurance premium discount to farmers that plant cover crops. Recent polling from the National Wildlife Federation shows that 78% of row crop farmers support the program, which could help bridge the gap between financial risk and stewardship of healthy soil. Furthermore, cover crops can translate into savings on insurance payouts, as researchers estimate that a 1% increase in adoption could reduce prevented planting indemnities by more than $38 million across 12 states in the Corn Belt.
With the upcoming Farm Bill, there is an opportunity to improve FCIP; simplify coverage for small, diversified, and organic producers; generate cost savings for the government; and encourage maintenance of nutrient-dense soils. The House of Representatives introduced their version of the Farm, Food, and National Security Act of 2024 (H.R.8467) in May. The Senate version of the bill has not yet been introduced, as of this article’s time of publication.
To dig deeper on the legislative text, EESI’s Farm Bill Side-by-Side series compares each climate-relevant program with the House version, upcoming Senate version, and current law.
Author: Lindsey Snyder
We'll deliver a dose of the latest in environmental policy and climate change solutions straight to your inbox every 2 weeks!
Sign up for our newsletter, Climate Change Solutions, here.
Advancing science-based climate solutions
Top-Rated Climate Nonprofit – 4-Star Charity