Local food crop loss and insurance costs

Agricultural risk is an interesting concept to non-farmers. Imagine you are self-employed, and your business is not only highly dependent on the weather, it can be crushed by it. People have various mental models of what they think your business is like, the skills needed to succeed, what the challenges and rewards are for producing food, and how you remain profitable, including where and how you should allocate your resources. While the scientific and policy communities increasingly look to agriculture as a solution to climate change, sustainable agriculture from a farmer’s perspective starts with economic sustainability, without which other aspects of sustainability – social and environmental – are a nonstarter.

Would you choose to start a business that, for most crop producers, is outdoors and thus subject to a unique set of variables that you cannot control? With no building for protection, frost, wind, hail, flood, and drought are weather events that can take an otherwise well-executed production plan and ravage profits, often creating an economic loss. How many of these can a business endure? Beginning farmers are exceptionally susceptible.

These weather perils typically don’t happen every year in every field for every producer (although I know of one in Weld County with one field hailed to oblivion for 5 years straight), but for those who have experienced one or more of them, each thunderstorm elicits a silent prayer, please spare my field.

The core question to me is this: if we truly value local agriculture in Northern Colorado for the food, culture, community, open lands, and ecosystem services it provides, how do we increase its resiliency, and better manage inherent risks in a weather era that will bring us more extreme events, according to our best climate scientists?

Remember the flood of September 2013? Markets were closed and crops were lost as peak harvest began. June and August 2018 hail events? Some producers replanted in late June only to be wiped out by the August hail storm. Northern Colorado is one of the more hail prone areas of the US.

And did I mention that most farms in the region do not carry crop insurance? This is particularly surprising for high value, less resilient produce crops. Many of these growers will “self-insure” in some manner, which means they take the full burden of the financial loss.

Based on their evaluation of the cost/benefit analysis, most find the insurance products available too expensive to justify the cost, and this makes sense when we think about it compared to the cost of homeowner’s insurance. The number of farmers that can pay into that insurance pool compared to the number of homeowners in that insurance pool is just too few to cover all the costs of paying on crop losses if farmers were offered a lower insurance premium.

One product from the USDA is on the right track. Whole Farm Revenue Protection (WFRP) allows farms to insure 1, 2, 3 or more commodities with increasing government subsidy for the more commodities insured. However, back to the homeowner’s policy comparison, farmers cannot insure for the full value of a crop with WFRP, only up to 80% of the value. In an example of 75% coverage with an 80% subsidy from USDA, a farm might pay $1,300 to insure $76,000 in revenue under WFRP. This is about 6 times the cost of a homeowner’s policy. While better than a complete loss, some farmers choose to take the risk and skip a policy cost that doesn’t make them financially whole if they were to file a claim.

If farmers are crucial to the wellbeing of the US, can we reward their ongoing and increasing risk by lowering their costs to insure those risks?

So far 2020 has had spotty hail-related crop losses in Northern Colorado. Mother Nature will decide if crops planted make their way into the food system. Meanwhile, growers take courageous steps daily to nurture those crops.