Cash for Doomed Crops Means U.S. Farmers Avoid Disaster CostAlan Bjerga
When dry weather destroyed Leonard McKissick’s soybeans last year, U.S. government-backed insurance paid him $40,000, the bulk of his loss.
Across the Arkansas Delta this spring, farmers such as McKissick are sowing fields that suffered the worst drought in more than half a century. Even though crops may fail again, landowners are shielded by taxpayers from the full burden of their bad bets.
Drought helped drive the cost of crop insurance to a record $17.2 billion, the U.S. Department of Agriculture said April 29. The government covers more than 60 percent of payouts, spending about seven times more than a $1.4 billion program that helps farmers adapt to climate change.
The subsidies encouraging farmers to ignore addressing extreme weather are harder to justify when automatic budget cuts remove 5 percent from most U.S. programs and lawmakers prepare to craft a new five-year farm law.
“We have given farmers incentives to take on more risk rather than give them an incentive to create a permanent solution,” said Vincent Smith, a professor of agricultural economics at Montana State University in Bozeman. “You want to move toward programs that allow them to alleviate problems before the fact.”
Disaster declarations by the USDA have become commonplace over the past decade, as farmers face the disruption of traditional growing seasons.
Each of the Delta’s 26 counties has received a primary disaster designation in at least eight of the past 10 years, according to data compiled by Bloomberg. Every one of the state’s 75 counties has been declared a primary disaster area by U.S. officials in at least six of the past 10 years, meaning that at least 30 percent of a single crop has failed.
“We’ve had some really warm springs, where you go from relatively cool, to smoking hot,” said McKissick, 59, whose 300-acre farm near Palestine has been buffeted by floods, unseasonal frosts and bug infestations in recent years. “It makes it harder to play in the dirt when everything’s burning up,” he said.
Crop insurance administered by companies such as Wells Fargo & Co. and Ace Ltd. isn’t the only strand of emergency support for the nation’s farms, where profits surged to a record $113 billion in 2012. Farmers received $10.9 billion in disaster-related aid, excluding crop insurance, from Oct. 1, 2002, through Sept. 30, 2011, the most recent records show.
Taxpayers will eventually bear the burden of almost 75 percent of the losses from the 2012 drought because federal contributions grow when payouts exceed premiums, according to a study by Iowa State University Professor of Economics Bruce Babcock published today.
“Because tax dollars finance such a large share of the costs, farmers’ decisions about how much and what type of insurance to buy do not reflect their true valuation of the insurance,” Babcock said in the study by Environmental Working Group, a Washington-based organization that supports a shift of farm aid to conservation programs.
Keith Collins, a former USDA chief economist who now consults for the crop-insurance industry, said farmers and companies have adequate incentives to work toward reducing crop losses and the record payment for losses in 2012 reflects the once-a-generation nature of the drought.
“Crop insurance works well for major crops,” Collins said. Farmer contributions to premiums ensure they will pursue practices that lower their rates and company underwriting standards discourage risky practices, he said.
The funding gap between disaster aid and preventative measures persists even as scientists predict that farmers must prepare for extreme weather conditions.
A USDA report on climate change released in February said that the main U.S. growing regions will experience average temperatures that may rise 4 degrees to 6 degrees Fahrenheit (2 degrees to 3 degrees Celsius) over the next four decades, outpacing warming trends in the nation as a whole.
The Arkansas Delta, which bumps up against the west bank of the Mississippi River, sits at the crossroads of the nation’s breadbasket. South of the Corn Belt, north of cotton country and the boyhood home to singer Johnny Cash, the landscape is dotted with farms producing soybeans, cotton and rice.
Palestine, which locals pronounce as Pal-es-STEEN, sits in St. Francis County, which has been declared an agricultural disaster area by the USDA every year since 2005. Farmland lies within the city limits of the town of 700 people, a pit stop off U.S. Interstate 40, which runs through town on its way to Memphis, Tennessee, about 50 miles to the east.
Throughout Arkansas, where the average farm size is 282 acres, a steady supply of water is often the difference between success or failure. Money spent today to rejuvenate the soil reduces the need for handouts after a bad harvest, local landowners said.
That lesson hasn’t been lost on McKissick, a sharecropper’s son who learned to drive a tractor at age 6. In 2011 he sought a $20,000 USDA grant from its $1.4 billion Environmental Quality Incentives Program to irrigate more of his land. The application was turned down for lack of funds, he said.
“Raising crops is like raising kids,” McKissick said. “You give them what you can, and the Good Lord provides sunshine.”
Alvertis Gatlin, who farms 380 acres near McKissick, is planting an 18-acre field with irrigated rice this year thanks in part to a $10,000 USDA grant to grade the land to improve water flow. The 59-year-old plans to turn his farm over to his daughter in the next few years. “She won’t have to start off where I started off,” he said.
“You couldn’t afford to have land precision-leveled as a small farmer,” he said. “The difference is night and day.”
Investing in irrigation has already paid off for John McClendon, a former president of the American Soybean Association who raises more than 4,000 acres of soybeans near Marianna, about 15 miles southeast of Palestine.
McClendon’s abundant fields are divided by sweet gum and cypress trees. A 4-acre pond captures runoff used for irrigation helps lower his costs. Without the water, crops are “hit or miss,” he said.
Budget pressures mean both crop insurance and programs that reduce the need for it will need creative approaches to ensuring adequate funds, said Agriculture Secretary Tom Vilsack. The agency is focusing on ways to improve crop rotations and resource management to mitigate climate change effects, he said in an interview in Washington.
Programs will need to be adapted to regions affected differently by climate change, he said. “We can’t have one-size-fits all,” he said.
The USDA environmental incentives program funded 35 percent of the 130,000 applications received in 2012, before funds ran out. It has been cut 5 percent this fiscal year under automatic federal budget cuts known as sequestration. President Barack Obama’s budget for 2014 calls for a 12 percent reduction in all natural resources and environment initiatives, to $3.9 billion. Total USDA spending would fall 4.6 percent to $145.8 billion next year.
Vilsack said his agency will offset lower spending by seeking partnerships with companies to promote better land use. “The total amount of investment isn’t going to be less. It’s going to be more,” he said.
Representative Rick Crawford, the Arkansas Republican whose district includes the northern Delta, said the government can reduce its bill by giving give farmers more control over emergency aid. He introduced a bill this year to create tax-deferred savings accounts that would allow farmers to set aside as much as $500,000 for hard times.
“We know it’s going to be hard to get funds, and we need to be proactive when a disaster comes,” said Crawford, a former marketing manager for Deere & Co., the world’s largest agricultural-equipment maker. “How about money for irrigation? How about grain bins?”
The nation’s largest farm lobby defends crop insurance and argues it needs to strengthen.
Last year’s drought proved that insurance is essential to U.S. farm aid, said Bob Stallman, president of the American Farm Bureau Federation. “Had that not been in place, you would have heard farmers screaming for ad-hoc disaster assistance, and frankly some of them would have lost their farms,” he said in a Washington briefing last month.
Stallman’s group, along with major U.S. commodity groups including the National Corn Growers Association, are lobbying for more insurance aid in a new agriculture law to replace the current legislation set to expire Sept. 30.
Senate Majority Leader Harry Reid said last week his chamber will vote on a new farm law in May, while the House Agriculture Committee is planning to draft its version May 15.
Back in Palestine, the Washington wrangling means little to McKissick, who knows the long-term prospects of his farm will improve if he can find the finances for irrigation. He’s now planting sorghum, a more drought-resistant crop, on the barren soybean acres and hoping for the best.
“I don’t want to be a big farmer,” he said. “I just want to be a good farmer.”
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