Like a lot of other western Kansas wheat farmers, the most important day of the year to me was when the crop insurance adjuster showed up to assess losses from the recent historic drought and the recent severe hail storms.
How can anybody be critical of federally-funded crop insurance and of such a welcomed program?
Maybe because it costs a lot. Maybe because the U.S. taxpayer’s contribution could go a lot further if some of that subsidy were invested in other ways to protect farmers and the American public from crop loss. And maybe there’s been a failure to provide an objective rationale as to why we have crop insurance subsidies to begin with.
Let’s take a look at some of the costs involved. Here on our farm in Lane County, we have a 310-acre half section with a 52-bushel wheat yield. With 65 percent revenue protection, we have an acre guarantee of 34 bushels per acre and total coverage of $51,000. For that, we pay $3,200 or $10 per acre. However, the U.S. government chips in another $4,600 to bring total premiums to $7,800 or $25 per acre. And to me, $25 per acre sounds awfully high.
In looking at some Kansas State University cost-return budgets for wheat in a wheat-sorghum or corn-fallow rotation in southwest Kansas for 2018, I could expect to pay $23 per acre on my fertilizer program and $25 per acre on all my herbicides. I’d also probably pay $26 per acre for harvesting the crop, hauling not included. These are huge costs…and crop insurance ranks right up there with them. Cash rent on land is another big deal and, at present, probably runs $35 per acre.
Remember, too, that for the $25 per acre, I’m getting $51,000 in coverage in case I’m totally wiped out by hail, drought, disease or whatever. So with $7,800 in annual premiums, I’m guaranteeing I have a total wipeout every 6.5 years. We all know that farming carries some risk but a total loss every 6.5 years is an incredible overstatement of that risk.
And the $25 per acre…that’s with dryland wheat which is a low yield, low value crop. What would those subsidies and costs look like with something like 200-bushel irrigated corn?
Now any perceptive wheat farmer is going to quickly point out that we farmers are paying only $10 of the $25 per acre in total costs. So why should we care? This is a heck of a good deal. Good point. But Ohio State University ag economist Carl Zulauf says the institution of crop insurance has some problems.
Crop insurance has become a policy issue because there is a lack of an objective rationale for the subsidies involved. He adds if we fail to provide that rationale, the program could be headed for cuts or even elimination. What’s that old saying? Pigs get fed but fat hogs get slaughtered?
Why are these costs so high? In the current Farm Bill debate, one of the issues being talked about is to reduce insurance commissions from 14 percent down to 12 percent. In my industry, I’d take 12 percent in a heartbeat.
Ag economist Vincent Smith from Montana State University says 58 percent of all subsidies go to insurance companies and their agents — not to farmers. I personally like the idea of privatizing everything, but it has been suggested if we want to cut costs, why not have the United States Department of Agriculture’s Farm Service Agency administer the program. Sign up for crop insurance the moment after you report your wheat acres. That’s pretty efficient.
What are some other ways to save money with crop insurance? How about eliminating coverage on non-traditional, high risk rotations — like five-minute fallow wheat, or where dryland wheat is planted five minutes after harvesting a dryland corn crop in the semi arid High Plains. Or again in the High Plains, if you can insure continuous dryland milo after last’s milo for the same coverage and the same cost, coverage should be reduced or eliminated. Look at the K-State data on what happens to milo yields the second year around.
Crop insurance has other problems. We like to talk about “the level playing field.” But with crop insurance, there are strong built-in biases which, for example, encourage farmers to plant corn rather than grain sorghum — a crop with undoubtedly better drought hardiness, higher yields and significantly lower incidence of acres abandoned. In other words, you get better coverage with a more risky crop.
And say you want to be innovative and plant triticale instead of wheat because you have a negligent neighbor who refuses to control his volunteer wheat. Last year many of these negligent neighbors forced a much unwanted and costly wheat streak mosaic virus infection on untold thousands of acres of wheat, leading to untold millions of dollars in crop losses — all of which could have been totally avoided by simple crop choice. Granted USDA’s Risk Management Agency is now allowing pilot programs to insure triticale — which is virtually immune to the viral disease — but for the majority of the acreage and for other such crops, the best you can do is buy NAP insurance which I think is slightly better than nothing. No level playing field here.
And my biggest irritation of all is why have we chosen to pay over and over and over again for the same crop losses year after year. My vote is we take some money from cuts in insurance and put it into research designed to defeat the causes for crop loss. Our biggest cause for loss is drought. Give us more drought-resistant varieties and hybrids, better salt tolerance, better pest resistance, and help in making more efficient use of remaining irrigation water supplies. Why do we need subsidies if we have better adapted varieties of wheat that yield four to five bushels more per acre and that produce more residue.
My urban cousins who already have a great deal of trouble understanding farm subsidies could easily understand this and also see the benefit in it to them. This is being seen in public doing the right thing.
But this is exactly what we are not doing. In a recent conversation with Gary Pierzynski, head of K-State’s Agronomy Department, he said the College of Ag and Agronomy Department budgets have continued to shrink.
“We just took a 4.25 percent, permanent budget cut for FY 19 which is the seventh budget cut we have had going back to July 2015,” he said.
So what does this mean? Simply put, vacant faculty positions can’t be filled, so hopefully no other faculty or staff lose their job.
“And as far as faculty retention is concerned, that is a perennial problem here as our salaries always rank dead last in the Big 12,” Pierzynski said. “That makes us very susceptible to raiding by other universities and industry.”
Ironically, Dr. Pierzynski himself will be leaving K-State later this month for The Ohio State University.
“We’ll miss K-State, but candidly, I will not miss the dismal support of higher education and the land-grant mission by our state government,” he said.
So, at the end of the day, do you think we can find ways to cut the crop insurance budget? Without a doubt; and the sooner the better. There are better ways to spend that money — or at least some of it.