It’s not just Minnesota either. Across the Midwest, one of the world’s most fruitful breadbaskets, farmers are well behind their usual planting pace. If the rain and cold continue, some crops will not be planted at all.
It’s bad. Now the US government is making the situation worse. With incentives built into federally subsidized crop insurance programs, some farmers may soon find it more profitable to file insurance claims and keep idle productive land than growing wheat, corn and soybeans, even if prices go up. It’s unclear how many acres could be affected; potentially, it’s millions. With deadlines looming for farmers to make decisions, there is an urgent need for policymakers to redirect incentives towards planting.
Farming is risky. To mitigate this risk, the government has long subsidized crop insurance against losses due to adverse weather or markets. In an average year, over a million policies worth over $100 billion are issued for crops grown on hundreds of millions of acres. Since 1994, every basic crop insurance policy has provided “seedling insurance” to protect investments in land, equipment and agricultural supplies such as seed in the event that bad weather or other circumstances render the planting not possible.
This is an essential policy for every farmer. But policymakers have long feared that insurance will discourage production.
Risk starts with how the value of a future crop is calculated for insurance purposes. Federal crop insurance managers calculate averages from a decade of production history to project future yields and related insurance coverage. A higher yield in one year increases a farmer’s production history and the value of crop insurance in the future. Poor performance diminishes the value of this insurance.
Plantation insurance has two important exceptions. First, when a farmer applies for prevented planting, those acres are excluded from the production history average for the year, until a second crop is planted later. If a second crop is planted (for example, if the waterlogged land is dry enough to plant), the payment for prevented planting insurance is reduced and the yield of the second crop is included in the history of production.
It’s a risky choice for the productive farmer. Take a substantial payout and leave the field sluggish; or take a smaller payment and bet on a good yield for crops planted later in the year.
Barring extremely high prices like those prevailing today, an economically rational farmer will choose to skip the second planting and take the larger payment. Indeed, an analysis of historical agricultural data shows that this is precisely what has happened in the past. During periods when second plantings were not included in the production history for insurance purposes, farmers replanted.
For example, between 1995 and 1997, 36% of the prevented plantation areas (4.6 million) were replanted with secondary crops. Between 2008 and 2011, the period in which (as now) second crops were included in the production history, only 28,708 hectares prevented from sowing – around 0.1% of those claimed – were replanted with second cultures. Similarly, a 2018 study found that farmers typically manage crop insurance decisions to avoid reductions in their production histories.
Like the weather, requests for restrained plantings fluctuate wildly from year to year. The dates farmers need to make a decision vary by crop and region, but some have passed and most key dates are approaching. For spring wheat, it’s May 25 in northern Minnesota and North Dakota; corn and soybeans tend to be days or weeks later. Farmers who don’t file a claim within the allotted time will see their coverage drop a little every day for almost a month, giving them more and more reason to join the program and reduce returns to zero in 2022.
With soaring food prices, the White House and Congress should not accept this incentive structure. Unfortunately, it’s too late for large-scale reform of a complex insurance program in which claims are already being made in 2022. But it’s not too late to iron out the details to encourage farmers to plant waterlogged acres. water later in the year. To do this, the Ministry of Agriculture should order that production histories not be calculated on the prevented planting areas that will receive a second harvest in 2022. In future years, this decision could increase the cost of the subsidy. crop insurance. But for now, it’s a quick way to encourage food production when consumers need it most.
For decades, crop insurance has been crucial in protecting farmers who produce food for Americans and the world. It should not become a program that prevents farmers from planting at all.
More other writers at Bloomberg Opinion:
• The Inconvenient Truth That Could Prevent Global Famine: Gideon Eshel
• Bringing home the bacon will cost you, for now: David Fickling
• The greatest ideas in agriculture today are also the oldest: Amanda Little
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Adam Minter is a Bloomberg Opinion columnist covering Asia, technology and the environment. He is the author, most recently, of “Secondhand: Travels in the New Global Garage Sale”.
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