Guest commentary: Crop insurance often misunderstood
By Joe Burke
As harvest continues, we're getting a truer picture of what farmers like myself and others throughout the Midwest were — or were not — able to grow this year.
And as is typical in the fall, we hear lots of numbers in the news — bushels per acre, percentage of harvest completed.
Because of the drought, there will be some additional statistics that we expect to hear a lot about this fall; attention is likely to be focused on the number of crop insurance claims filed and on the amount of money that farmers will receive as a result of failed crops.
For farmers, whether to purchase crop insurance is a business decision that gets made on a year-to-year basis. But crop insurance typically gets the attention of the news media and the general public only in a catastrophic year like this one. And unfortunately, there is much about crop insurance that is misunderstood.
Farmers understand that crop insurance is the only meaningful risk management option available to them today.
Fortunately, 69 percent of eligible acres in the U.S. were insured as of 2011. That compares to just 25 percent of eligible acres during the last significant drought in 1988.
There are a couple of implications of these statistics. It stands to reason that more money will be paid out in claims this year, simply because more acres are insured.
It also means that a larger percentage of farmers will have the financial wherewithal to purchase inputs and produce a food crop again next year.
Farmers also know that crop insurance isn't cheap. The out-of-pocket expense for farmers, based on average per-acre premiums for corn and soybeans, can run in the neighborhood of $23,000 per year for an Illinois farmer with 1,000 acres. In 2011, Illinois farmers spent $409 million out of pocket on crop insurance premiums.
It's so expensive because of the inherent risks of farming, including the weather, global markets and government policies, among other factors.
While farmers invest heavily when they choose to buy crop insurance, they don't always see a return. If they don't experience losses, they don't collect benefits.
In the past 10 years, corn and soybean farmers in Illinois have received an average of $0.46 for every $1 spent on insurance premiums.
Far beyond being a business decision made by an individual farmer, crop insurance is a matter of national security. History shows that a country that is hungry or that depends on others for food is vulnerable and unstable.
During the Dust Bowl of the 1930s, American citizens literally starved to death. In the years since then, Congress has taken seriously the need to support American agriculture to ensure a stable and abundant food supply.
Ensuring (and insuring) the country's ability to produce food is a team effort — farmers, private crop insurance companies, private reinsurance companies and the federal government are all part of the equation.
Joe Burke farms in the Thomasboro area and is the chair of the Marketing Committee for the Champaign County Farm Bureau.