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Crop insurance payouts have shot up due to increased flooding and droughts linked to climate change

Crop insurance payouts have shot up due to increased flooding and droughts linked to climate change

Increased Flooding and Droughts Linked to Climate Change Have Sent Crop Insurance Payouts Skyrocketing

As climate change drives more droughts, rain and extreme weather across American farmland, the cost of insuring the country’s farmers has soared, putting taxpayers increasingly on the hook for the growing tab.

A new analysis, based on government data, shows that insurance payments to farmers rose more than 400% for drought losses and nearly 300% for losses from rains or flooding between 1995 and 2020. In that time, farmers received $143 billion in indemnity payments—settlements of claims—more than two-thirds of which were for drought and rain that destroyed crops or prevented farmers from planting them in the first place.  

“What we’re seeing is that climate change is likely increasing costs to this program, and we also know that crop insurance discourages farmers from adapting to climate change,” said Anne Schechinger, a director with the Environmental Working Group, an advocacy organization that conducted the new analysis and has long tracked government subsidies to farmers. “We think the program needs to be reformed to encourage farmers to become more resilient to extreme weather from climate change.”

Crop insurance was initially created to provide compensation for farmers when bad weather damages crops or falls in prices. According to government data, weather-related claims have historically represented the largest chunk of the dollars flowing into farmers.

According to projections from government and academic research, the cost of climate change will increase as growing conditions become more difficult. One study found that the cost of growing food is rising as a result. Published last year, blamed the increased costs of the crop insurance program squarely on global warming, the first such research to say the climate costs aren’t merely a prediction, but have already climbed.

Up to now, the crop insurance program, run by the Department of Agriculture’s Risk Management Agency, has been “actuarially sound”—that is, the premiums paid each year generally don’t exceed the cost of the indemnities paid out.

But that’s only because taxpayers pay 60 percent of those premiums—about $103 billion of the $171 billion total—while farmers pick up the rest.

“If you look at the performance of the program, it’s good. Premiums are sufficient to cover indemnities,” said Joe Glauber, a former chief economist at the Department of Agriculture, now a senior research fellow at the International Food Policy Research Institute. “But if you don’t include the premium subsidy, it doesn’t work.”

Glauber noted that in some disastrous years, like 2012, which was plagued by extreme drought,  indemnities far exceeded the premiums. “If you had two 2012’s in a row, the rates would have to increase,” he said.

With the expected challenges of climate change, those costs most certainly will rise, perhaps to a point where farmers can’t afford insurance anymore and quit farming as a result—unless Congress and taxpayers are willing to pay more of the growing tab.

The majority of lawmakers are unwilling to cap rates or curtail the program.

“Many unforeseeable factors impact yields, price and finances of agricultural producers, and that uncertainty makes the industry susceptible to risk,” said Rep. Glenn ‘GT’ Thompson, a Republican from Pennsylvania, at a Congressional Crop Insurance Caucus in 2019. “For the long-term success of American agriculture and our national food supply, it is critical that farmers and ranchers have access to voluntary tools to help manage that risk.” 

Supporters also note the fact that the Risk Management Agency now incorporates climate change into its calculations. To better reflect changes in climate and weather patterns, the agency has recently changed the time period on which it bases risk, from 40 to 20 years.

“This allows premium rates to respond more quickly to changes in risk and better reflect the evolving conditions,” Thomas Worth, chief actuary for the agency, A panel was informedLast year. 

Critics point out that crop insurance is even more concerning. has encouragedFarmers continue to plant environmentally harmful crops year after year, causing erosion on the fertile soils in the Midwest, increasing the use polluting fertilizers, and unleashing soil carbon. They say the program has effectively covered up the financial risk farmers face from climate change—and risks to the broader food supply.

“You don’t want to provide an incentive for producers to continue just because the government is bailing them out,” Glauber said.

The safety net created by the crop insurance program has pushed farmers to take more risks and plant crops in places they shouldn’t, many critics say. 

“The program encourages farmers to move production of crops, like wheat especially, into semi-arid areas,” said Vincent Smith, a professor in the department of agricultural economics at Montana State University, who has written extensively about crop insurance and other farm support programs. “It’s encouraged farmers to start planting on higher risk land, and from any climate change view, that’s a bad outcome. You’re getting relatively little extra wheat on this land and you’re releasing carbon from the soil.”

The Environmental Working Group’s new database, released along with the new analysis, drills down into crop insurance payments and subsidies, displaying them by county and state, by commodity and by the cause of loss. The Agriculture Department has all this data, but it can be difficult to find or understand.

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Their analysis showed that Texas had 10 counties that received the most drought-related payments, while Dakotas had 10, with 10 receiving excess moisture-related payments. This is consistent with the projections that Texas will become warmer and drier, while the Dakotas will become warmer and wetter. It also warns that if these trends continue to accelerate, the program may become too costly for the government and farmers.

Researchers who created the database hope it will help policy makers in negotiations for the 2023 Farm Bill. This multi-year legislation covers agricultural subsidies as well as food assistance programs. 

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But there’s growing debate over the crop insurance program and whether it’s the right place to create incentives for farmers to grow crops in more “climate friendly” ways.  Some proposals have suggested that farmers could get a discount on premiums if certain things are done on their farms, such as planting crops that lock carbon into the soil and avoiding tilling.

Glauber, for one, says he’s concerned that attaching climate incentives to crop insurance could complicate an already complicated program.

“I don’t think you should confuse what you’re trying to subsidize,” he said. “That’s best done by being explicit about it. Don’t bundle it with crop insurance.”

The Agriculture Department and private firms are working together to promote carbon trading markets. This is where farmers sell credits to polluting businesses that want to offset their carbon emissions. They do this by employing some of the same “climate friendly” practices that help soil store carbon and might be encouraged through the crop insurance program.

These practices are often criticized by critics because they can be costly for farmers and hard to verify.

“We know these practices are difficult,” Smith said. “If you want to get serious with a simple policy change that would have an impact on carbon emissions, how about getting rid of the crop insurance program?”

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