Published on 01/27/99

Crop Insurance Premium Cuts May Keep Farmers in Business

A recent cut in crop insurance premiums may help keep many of Georgia's farmers in business.

Plunging prices and rising costs have many farmers struggling to stay afloat. For many, that means buying little insurance, or none at all. And a University of Georgia scientist said that can be dangerous for the state's $6 billion farm industry.

A sound crop insurance program can keep the United States from depending totally on other countries for food, said Don Shurley, an agricultural economist with the UGA College of Agricultural and Environmental Sciences.

"That's an extreme case, but it could happen," Shurley said. "For farmers to remain in business, they must have acceptable methods to manage risk."

Without farm income, many Georgia towns would virtually close up, said Dale Rackley, a crop insurance specialist with the U.S. Department of Agriculture Risk Management Agency in Valdosta.

"Think of it like this," Rackley said. "If farmers face a disaster one year and can stay in business with insurance payouts, the nation may have to import food that year. But the farmers can still work to produce a crop the next year."

Shurley said most Georgia farmers buy crop insurance. But they don't always buy enough. "And as the cost to insure increases, fewer farmers buy enough to cover their crop adequately," he said. "This price cut can help them get the insurance they need to stay in business through crop disasters."

Shurley said the USDA's insurance premium reduction will help farmers in two ways. It will cut farmers' costs. And it will help more of them get enough crop insurance.

Agriculture Secretary Dan Glickman said low crop prices were the main reasons for the cuts. "We want to ensure that as many family farmers as possible take advantage of the opportunity to increase their coverage or benefit from reduced cost."

The price reduction is part of the nearly $2.4 billion financial assistance package Congress passed in the fall of 1998. It is intended to strengthen the farm "safety net."

(34999 bytes)The goal is to help keep U.S. farmers in business. If prices fall below the cost to raise food and fiber crops, farmers can't keep producing them, and U.S. farms may shut down.

But farmers can't just buy insurance, mismanage their crops and then make an insurance claim.

Adjusters work hard to make sure farmers filing a claim really tried to produce a crop using recommended farming methods, Rackley said. But other factors -- usually drought, flood, insects or diseases -- can keep them from making a full crop.

Minimum, or catastrophic, insurance pays if a farmer produces half or less of his expected yield. The expected yield is stated on the insurance policy. It's based on the 10-year history of production on that farm.

Catastrophic insurance doesn't cost much. But it pays out only about a quarter of the dollars a full yield would bring.

"Catastrophic coverage usually won't even pay the costs it took to raise the crop," Shurley said. "It certainly won't provide a farmer's family, or any other families, with food for the next year."

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.