Growers struggling as US floods reveal flaws in government crop insurance

Article   01 May 2019

When it comes to providing a safety net to agriculture, the United States’ government-backed crop insurance is something farmers will wistfully mention when they hit difficult times.

But the natural disaster experienced by growers in the Midwest in recent weeks shows that government support can’t always be as effective as it sets out to be – especially when there are multiple factors at play.

About 416,000 acres of cropland across six counties in Iowa were flooded after a ‘bomb cyclone’ hit the region in mid-March.

Millions of bushels of crops including corn and soybeans – predicted to be worth $17.3m to $34.6m – were destroyed, while farmland was left covered in debris left by the floodwater, with clear-up costs expected to reach about $34m.

Of the total land flooded, about 309,000 acres will be eligible for federal support to clear debris; but after that the funding runs dry.

The issue is that under current regulation, the government’s hands are tied when it comes to giving money to Iowa’s flood-hit farmers because there is no insurance mechanism to cover losses of stored crops.

The problem’s never been seen on this scale before, partly because US growers have never stored so much.

Trade wars and price drops

According to the USDA, farmers across the US held 2.7bn bushels of soybeans in storage as of 1 March – the largest amount on record for the time of year – while corn stocks were the third-largest on record.

Years of oversupplied markets and low prices are major factors. But the latest blow of lost sales stems from the US’s trade war with China, which was previously their biggest customer of soybeans. This means farmers have had little choice but to hang onto even more of their crops in the hope prices will eventually rise.

Last year, the USDA made $12bn available to farmers who suffered losses in the trade war – aid which didn’t require approval from Congress – but the recent flood damage has left politicians in a quandary.

Some have suggested pushing for legislation to provide aid for those who have lost stored crops, but any changes would require a long political process.

Given that support is needed urgently, and that farm incomes have already been declining for years, few farmers will be able to wait that long for help.

With the clear-up process now underway, farmers are having to face not only destroying contaminated crops, but also the possibility that they won’t be able to plant on saturated fields – further losses which will only partially covered by separate government programs.

Ultimately, these schemes will always be tied up in the political system, which makes them rigid and less likely to be able to respond to events in the timescale farmers need. What’s more, public funding for them is finite – meaning it’s difficult to offer cover for every eventuality.

Given the unpredictability of food production – and the increases in volatility being seen both politically and in global weather patterns – more flexible and adaptable risk management solutions have to be available to more farmers in future. Without them, farmers could be left high and dry, even if their crops aren’t.

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