ChewsWise Blog

ChewsWise Blog

Crop insurance - safety net or $9 billion boondoggle?

One of the toughest things about the 1,080 page Farm Bill is to write about it in a way that's accessible to readers, since the policy touches everything from agriculture to food stamps. Rather than cover the whole thing, the Food & Environment Reporting Network, where I serve as editor, decided to focus on one element: crop insurance.

The piece by Stett Holbrook, running on, begins:

Here’s a deal few businesses would refuse: Buy an insurance policy to protect against losses – even falling prices -- and the government will foot most of the bill.

That’s how crop insurance works.

The program doesn’t just help out farmers, however. The federal government also subsidizes the insurance companies that write the policies. If their losses grow too big, taxpayers will help cover those costs.

In the farm bill now making its way through the Senate, crop insurance will cost taxpayers an estimated $9 billion a year.

Never heard of it? This isn't your mother's car insurance, nor the home policy you have to cover disasters. No, this is a program that insures that farmers make the revenue they expect from crop sales. It's hard to imagine anything else like it in the business world, which is why one fund manager who buys farmland in the U.S. was quoted as saying in the Financial Times:

"I don’t know of any other business where you can insure 90 per cent of your P and L (profit and loss),” said an adviser to large farmland investors. “There’s a lot more understanding in the institutional world about this than you might think”.

In other words, investors are buying up farmland in part because the government makes sure they won't lose money. For details on how the program works -- and how crop insurance companies make money even when disasters strike -- read the rest of the article on msnbc.