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Cash for Doomed Crops Means Farmers Avoid Disaster Costs

May 1, 2013
money pile

May 1 (Bloomberg) -- When dry weather destroyed Leonard McKissick’s soybeans last year, U.S. government-backed insurance paid him $40,000, the bulk of his loss.     

Across the Arkansas Delta this spring, farmers such as McKissick are sowing fields that suffered the worst drought in more than half a century. Even though crops may fail again, landowners are shielded by taxpayers from the full burden of their bad bets.

Drought helped drive the cost of crop insurance to a record $17.2 billion, the U.S. Department of Agriculture said April 29. The government covers more than 60 percent of payouts, spending about seven times more than a $1.4 billion program that helps farmers adapt to climate change.

The subsidies encouraging farmers to ignore addressing extreme weather are harder to justify when automatic budget cuts remove 5 percent from most U.S. programs and lawmakers prepare to craft a new five-year farm law.

"We have given farmers incentives to take on more risk rather than give them an incentive to create a permanent solution," said Vincent Smith, a professor of agricultural economics at Montana State University in Bozeman. "You want to move toward programs that allow them to alleviate problems before the fact."

Disaster declarations by the USDA have become commonplace over the past decade, as farmers face the disruption of traditional growing seasons.


Disaster Decade

Each of the Delta’s 26 counties has received a primary disaster designation in at least eight of the past 10 years, according to data compiled by Bloomberg. Every one of the state’s 75 counties has been declared a primary disaster area by U.S. officials in at least six of the past 10 years, meaning that at least 30 percent of a single crop has failed.


"We’ve had some really warm springs, where you go from relatively cool, to smoking hot," said McKissick, 59, whose 300-acre farm near Palestine has been buffeted by floods, unseasonal frosts and bug infestations in recent years. "It makes it harder to play in the dirt when everything’s burning up," he said.     

Crop insurance administered by companies such as Wells Fargo & Co. and Ace Ltd. isn’t the only strand of emergency support for the nation’s farms, where profits surged to a record $113 billion in 2012. Farmers received $10.9 billion in disaster-related aid, excluding crop insurance, from Oct. 1, 2002, through Sept. 30, 2011, the most recent records show.

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