LANSING, Mich. — Michigan State University researchers have published a survey of farmers about their use of crop insurance, a tool the researchers say is becoming increasingly important.

 

The importance of Multiple Peril Crop Insurance (MPCI) was highlighted during a July hearing by the U.S. Senate Committee on Agriculture, Nutrition and Forestry. Farmers and farm group leaders testified about the crucial role of crop insurance for operations, especially in times of low commodity prices.

The researchers say that, given proposed cuts of more than 20 percent to the USDA, it’s important to understand how farmers currently use crop insurance, as well as the perceptions and motives underlying their insurance decisions. Proposed cuts to the federal crop insurance program include capping annual crop insurance premium subsidies at $40,000, limiting crop insurance subsidy eligibility to farmers with less than $500,000 adjusted gross income and eliminating the harvest price option for crop insurance policies.

The survey found that the proposed elimination of the harvest price option would affect most farmers.

A total of 612 farmers in Michigan and Iowa completed the survey. These two states were chosen as a typical Corn Belt state – Iowa – and a state that has a fairly typical mixed farming profile, Michigan.

Forty-three percent of the responding farmers were from Michigan, with the rest operating farms in Iowa. The farmers were asked about their crop insurance purchases and payment history for corn and soybeans, as well as their current plans for crop insurance purchases, among other topics. Farmers who grew at least 100 acres of corn or soybeans in 2016 were eligible to participate.

The survey found that 80 percent of those who participated bought crop insurance at least one year between 2011-15, with 64 percent of Michigan farmers buying MPCI for corn or soybeans and more than 92 percent of farmers in Iowa buying it at least one year between 2011-15. Farmers with fewer acres bought insurance at a higher rate than those with more acreage.

The researchers also found that insurance is more expensive in Michigan than in Iowa, which may be why fewer farmers in Michigan buy it. More farmers in Michigan own their land as well and have a more diversified crop portfolio: these factors as well could play into why fewer farmers in Michigan buy insurance.

According to the research paper, the USDA’s goal with crop insurance is to achieve parity between the amount of payments farmers make for crop insurance coverage and the amount paid to farmers affected by crop losses. However, it was also found that collectively, farmers paid out more in premiums than they received in indemnity payments. Farmers are aware of this, according to the survey.

Also in the research: Few farms would be affected by the proposed eligibility cap of $500,000 adjusted gross income – however, about 2 percent of farmers in the survey would be affected by the $40,000 cap on claim payments being proposed.

“An estimated 12 participants, six in each state, receive subsidies greater than the $40,000 cap,” the research paper states. “All participants with subsidy estimates greater than $40,000 operate at least 1,200 acres. This represents less than 2 percent of our survey respondents.”

But, more farmers would be affected by elimination of the harvest price option, the most popular kind of crop insurance coverage, the researchers say.

According to National Crop Insurance Services, an insurance industry advocacy group, the harvest price option is revenue or price coverage within the crop insurance policy that provides protection on lost production at the higher of the price projected just before planting time or the price at harvest.

Farmers use the harvest price option in the event of a crop loss or damage. “Without the harvest price option, the producer’s loss would be indemnified at the lower price projected at the start of the season,” the group explained.

“Unfortunately, such an indemnity (payment) would place many farmers in financial jeopardy. 

 

“The purpose of the harvest price option is to provide the farmer with sufficient funds to settle the forward contract.”

According to the MSU research paper, about 80 percent of insured corn and soybean acres in Michigan and nearly 95 percent of insured corn and soybean acres in Iowa are covered by revenue protection policies.

A complete copy of the paper, called Farmers’ Crop Insurance Choices in Iowa and Michigan: Survey Summary, can be found at the AgEcon website at https://ageconsearch.umn.edu/record/262455