An Annual Disaster
Crop Insurance: Executive Summary
When you buy home or car insurance, you expect to collect only when there’s a disaster – a tornado, a hailstorm or a collision. If there was a policy that paid out year after year, you only had to pay less than half of the premium and you’d actually make money from buying it, you’d jump at it – but the insurer would be foolish.
That’s the deal more than a million farmers – including big, rich agribusinesses – are getting through the federal crop insurance program. And the insurer is the American taxpayer.
Crop insurance has largely replaced the ad hoc relief programs authorized by Congress in response to disasters. Crop insurance has come under attack for its increasing cost, environmental impacts and secrecy, but the farm lobby, the crop insurance industry and their political patrons argue that despite its flaws, crop insurance is cheaper and less likely to lead to environmental harm than disaster programs.
The facts tell a very different story. Crop insurance actually costs billions of dollars more than disaster payments.
EWG analyzed crop insurance and disaster payment data and reviewed scientific and economic studies of the two approaches to farm assistance. We found:
- From 1999 to 2008, in the six years Congress authorized large ad hoc disaster relief programs, farmers got about $15 billion in disaster payments, but more than $26 billion in crop insurance payouts. Crop insurance payouts exceeded disaster payments in all of these years except 2005. After subtracting farmers’ share of the premiums and adding administrative costs, the net cost to taxpayers of crop insurance was almost $20 billion, nearly a third larger than disaster payments.
- In all years between 1999 and 2008, ad hoc payments responding to disasters ranged from $105.2 million in 2006 to $3.3 billion in 2005. But crop insurance payouts went out year after year whether or not a disaster occurred. Crop insurance payouts never fell below $2.8 billion and peaked at $9.3 billion in 2008, almost three times larger than the highest year for disaster payments.
- Farmers had to lose more than 35 percent of their crop before qualifying for a disaster payment. Some crop insurance policies pay if farmers lose as little as 15 percent of their crop or revenue. Disaster programs paid out at a fraction of the actual market price for the crop – between 1990 and 2008, from 42 to 65 percent. But crop insurance policies pay out at the full market price, set when the policy is bought. For some policies the payout price can actually increase over the course of the growing season.
- Compared to disaster payments, crop insurance exacerbates rather than reduces incentives for farmers to grow on marginal and environmentally sensitive land. Situations that encourage harmful planting are more prevalent with crop insurance than they ever were with ad hoc disaster payments or standing disaster programs.
Crop insurance is not really insurance, but income support masquerading as disaster relief. Policymakers must cut through the myths spread by its champions and return crop insurance to a safety net that taxpayers and the environment can afford.