Nearly 65% of federal crop insurance premiums are subsidized with federal funding
South Dakota farmers have received nearly $10 billion in payouts from the Federal Crop Insurance Corp. over roughly the past two decades, with payments specifically due to weather disasters having grown significantly over that time.
Between 2001 and 2022, South Dakota was among the top states in the nation for receiving insurance payouts for crop losses due to weather disasters, a trend environmentalists say reveals a hidden but rapidly growing cost of climate change that increases the frequency and severity of storms that damage crops.
Of the $9.6 billion sent to the state’s farmers and ranchers during that period, more than $8.3 billion was claimed for weather-related losses due to excess moisture, drought, hail, wind or freezing temperatures, according to a new analysis by the non-governmental organization Environmental Working Group (EWG). The rest was for non-weather related losses.
Farmers who purchase crop insurance can receive compensation any time their crops are damaged or destroyed, or when they are unable to plant, thus eliminating expected income.
American taxpayers have funded much of the payouts, as nearly 65 percent of premiums for the USDA-run crop insurance program are subsidized with federal funding.
The Congressional Budget Office estimates that the crop insurance program will cost taxpayers $16.3 billion in fiscal year 2023, when average U.S. farm incomes are at or near record highs. American farmers received a total of $19.1 billion in crop insurance payouts in 2022, a record and well above the $3 billion paid in 2002, according to EWG.
Critics of the USDA program have said the crop insurance program needs reforms to reduce taxpayer support. This would increase transparency on the flow of funds and encourage farmers to make their operations more resilient against the long-term effects of climate change, they said.
Renewing the crop insurance program is part of the 2023 farm bill now being considered by the US Congress.
Anne Schechinger, Midwest director for EWG, said there is a strong connection between rising crop insurance payouts and climate change.
“We know that these payments will continue to increase and that the program will be increasingly costly to taxpayers and farmers as this extreme weather worsens,” Schechinger said in an interview with News Watch.
“We are very confident that there is a strong link with climate change here because farms are one of the most vulnerable businesses to climate change.”
While the USDA oversees the program, insurance policies are sold and managed by private companies.
A previous EWG analysis found that a third of all crop insurance payout funds — about $33 billion over the past 10 years — were absorbed by a dozen major insurance companies and their agents who sell policies, not by farmers who work land and take the risk.
“The reality is that not many American farmers are taking advantage of these programs and that the money is going mostly to these bigger, wealthier farmers,” Schechinger said. “And insurers certainly make billions of dollars every year.”
Over the 22-year period reviewed by EWG, South Dakota farmers received the third-most payments of any state for losses due to drought ($4.1 billion) and excess moisture ($3.3 billion), and the sixth highest payouts for hail damage ($620 million).
Although claim amounts vary by year and weather conditions, total payments to South Dakota farmers for crop losses have grown steadily over the past two decades, with a sharp increase in the last decade: $180 million paid out in 2014 ., $188 million in 2015 and $1.3 billion in 2022.
Despite rising costs and payouts, however, South Dakota Farm Bureau Federation President Scott Vanderwaal said the crop insurance program remains a critical component of the economic equation that allows farmers to stay in business.
“It’s so vital to the ability of farmers and ranchers to manage their risk,” said Vanderwaal, who also serves as vice president of the American Farm Bureau, which is the certified agency allowed to sell crop insurance. “When your livelihood is so dependent on the weather, you have to be able to manage that risk.”
VanderWal said the program has saved South Dakota family farms from financial devastation many times, most recently in 2019 when extreme wet weather prevented many row crop farmers from even planting a crop. USDA figures show South Dakota farmers received nearly $1 billion in crop insurance payments due to flooding that year alone.
“I can tell you that if we have a crop insurance claim on the field, we don’t make any money on it. It just lessens the pain and keeps you in business for the next year.”
VanderWal said taxpayer subsidization of the program is important to ensure American farmers can stay in business.
“This is the investment the American public is making to ensure that the industry that produces our food, fiber and fuel remains viable and strong, so that we do not find ourselves dependent on other countries for our food as we do for energy through a lot of time. ,” he said.
“Since we can feed ourselves, we don’t have to worry about getting our food from other countries. This is so incredibly important and part of our national security.”
Beyond individual losses caused by extreme weather, crop insurance protects entire communities that rely on farm-related costs, said Jerry Schmitz, executive director of the South Dakota Soybean Association.
“If these people have a huge loss and can’t pay their bills, grocery stores, seed stores and other local businesses suffer as well,” Schmitz said.
Schmitz also said the crop insurance program is critical to the young farmers who will shape the future of agriculture in America.
“For a young person coming in, with the debt they’ve incurred just to get into the business, and suddenly there’s a loss of income, it’s quite impactful.”
— This article was produced by South Dakota News Watch, a nonprofit journalism organization located online at sdnewswatch.org.