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October 18, 2012

Crop Insurance Will Save Farms This Year

For more information on Newsline, contact: Kari Barbic, Media Specialist, American Farm Bureau Federation, karib@fb.org.

There’s a spotlight on the nation’s crop insurance program as experts speculate it may also break records this year. AFBF Economist John Anderson explains more about the program and why it’s important in this story from AFBF’s Johnna Miller.
Miller:Due to one of the worst droughts in U.S. history, economists expect the price tag for the crop insurance program to skyrocket.
Anderson:It’s insurance, so it shouldn’t be surprising in a year like this year which is arguably the worst production year in one or two generations, that insurance should pay out a lot. So there’s no surprise that we’re talking about fairly big numbers.
Miller:American Farm Bureau Federation Economist John Anderson says it’s actually a good thing that so many farmers and ranchers participate in the crop insurance program, because it has become the biggest part of the safety net for U.S. agriculture.
Anderson:What would it be like if we had continued to have no insurance or very low levels of participation insurance? There would be a tremendous outcry for some sort of intervention this year to deal with the effects of this drought. We would be talking about probably the biggest or one of the biggest ad hoc disaster programs that we’ve probably ever had and it’s telling that there’s been no call for that. None.
Miller:One of the biggest complaints from opponents of crop insurance is the amount the government pays into the program. Roughly 60 percent is paid by the federal government; 40 percent by the farmers or ranchers. Anderson says this year’s drought is a good example of why that’s the case.
Anderson:We have a situation where we’ve had a massive drought in this country that’s affecting a huge percentage of the farmland in the country. Those kinds of events are very, very difficult to insure. The analogy we use is like everyone who drives a car having a wreck on the same day. You have that kind of widespread risk or the potential for those kinds of widespread losses, it’s very difficult for the private sector to really get excited about stepping up and offering insurance on those kinds of losses. The fact that the government is involved to backstop the system and make it affordable is what helps it to exist in the presence of those widespread risks that are really common to agriculture.
Miller:And Anderson says crop insurance does make a difference for consumers.
Anderson:If we didn’t have insurance, if we didn’t have some sort of mechanism for helping farmers deal with that kind of risk, the normal response would be just to produce less. That has definite impacts for consumers. We’d have lower production and higher prices than what we otherwise have. So the availability of this insurance, the government involvement in this insurance allows farmers to operate at a higher level than they otherwise would if they were having to stand all this risk on their own and that’s certainly beneficial to consumers.
Miller:Johnna Miller, Washington.
Miller:We have one extra actuality with AFBF Economist John Anderson. In that extra actuality he says it’s too early to know how many farmers will rely on their crop insurance this year. The cut runs 19 seconds, in 3-2-1.
Anderson:Even though we expect big numbers we really don’t know what the numbers will be yet. On a lot of these insurance policies that are out there, we don’t even have the final information that we need to determine what the loss will be . We’re still waiting on final prices to be established and in a lot of parts of the country, final yields to be established. So everything we talk about here on insurance payouts is very preliminary.
Miller:Newsline is updated Mondays and Thursdays by 5pm Eastern time. Thank you for listening.

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