Food prices are soaring and worse may be on the way.
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 continues, some crops won’t be planted at all.
That’s bad. Now the US government is making it worse. Thanks to incentives built into federally subsidized crop insurance programs, some farmers may soon find it more profitable to file insurance claims and keep productive land idle than to produce wheat, corn and soybeans, even though prices are surging. It’s unclear how many acres could be affected; potentially, it’s millions. With deadlines looming for farmers to make decisions, it’s urgent for policy makers to shift the incentives toward planting.
Farming is risky. To mitigate that risk, the government has long subsidized crop insurance against losses due to weather or bad markets. In an average year, more than 1 million policies worth over $100 billion are issued on crops grown on hundreds of millions of acres. Since 1994, every basic crop insurance policy has provided “prevented planting insurance” to protect investments in land, equipment and agricultural supplies like seeds in the event that bad weather or other circumstances makes planting impossible.
It’s an essential policy for every farmer. But policy makers have long worried that insurance can discourage production.
The risk starts with how the value of a future crop is calculated for insurance purposes. Federal crop insurance managers calculate averages of a decade of production history to project future yields and related insurance guarantees. A higher yield in one year boosts a farmer’s production history, and the value of crop insurance in the future. A poor yield lowers the value of that insurance.
Prevented planting insurance includes two important exceptions. First, when a farmer makes a prevented plant claim, those acres are excluded from the production history average for the year, so long as a second crop isn’t planted later. If a second crop is planted (say, if waterlogged land dried enough for planting), the prevented plant insurance payout is lowered and the second crop yield is included in the production history.
It’s a risky choice for the productive farmer. Take a substantial payout and idle the land; or take a smaller payout and gamble on a good yield for crops planted later in the year.
Barring extremely high prices like those prevailing today, an economically rational farmer will elect to skip the second planting and take the larger payout. Indeed, an analysis of historic farm data shows that’s precisely what has happened in the past. During periods in which second plantings were not included in the production history for insurance purposes, farmers replanted.
For example, between 1995 and 1997, 36% of prevented planting acres (4.6 million) were replanted with second crops. Between 2008 and 2011, a period in which (like now) second crops were included in the production history, only 28,708 prevented planting acres — around 0.1% of those claimed — were replanted with second crops. Likewise, a 2018 study found that farmers generally manage crop insurance decisions to prevent reductions in their production histories.
Like the weather, prevented planting claims fluctuate wildly between years. The dates upon which farmers are required to make a decision vary by crop and region, but some have passed and most of the key ones are approaching. For spring wheat, it’s May 25 in northern Minnesota and North Dakota; corn and soybeans tend to be days or a few weeks later. Farmers who don’t file a claim before the relevant deadline will watch their coverage drop by a little bit each day for almost a month, giving them more and more reason to enter the program and reduce yields to zero in 2022.
With food prices spiking, the White House and Congress shouldn’t accept that incentive structure. Unfortunately, it’s too late to make large-scale reforms to a complex insurance program in which claims are already being made in 2022. But it’s not too late to tweak the details to encourage farmers to plant waterlogged acres later in the year. To do that, the Agriculture Department should order that production histories will not be calculated on prevented planting acres that receive second crops in 2022. In future years, that decision may raise the cost of subsidizing crop insurance. But for now, it’s a quick means of encouraging food production when consumers need it most.
For decades, crop insurance has been crucial to protecting the farmers who produce food for Americans and the world. It shouldn’t now become a program that prevents farmers from planting at all.
More From 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 Biggest Ideas in Farming Today Are Also the Oldest: Amanda Little
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Adam Minter is a Bloomberg Opinion columnist covering Asia, technology and the environment. He is author, most recently, of “Secondhand: Travels in the New Global Garage Sale.”
More stories like this are available on bloomberg.com/opinion
