Bailouts, Handouts, and Crop Insurance

So there seems to be a lot of confusion out there by many people, including people who I believed understood how this system works for farmers. In the spirit of full disclosure, the numbers I’m sharing are generalized, and this blog is going to be long...so bail now if you’re not into understanding economics, farm finance, and insurance.

People often see or hear about a crop loss, in this case fruit, and wonder about the “bailout” the farmers will receive. Well, first off, there is no bailout. My farm isn’t GM, and I don’t have union clout to demand help. The government does provide disaster payments, so I’ll address those first.

When you hear about a farmer receiving a disaster payment, some would have you believe that a USDA or FSA (Farm Service Agency) person shows up at the farm, says “well Jeff, how bad was it?” and whips out a check for a couple of hundred grand. Let me impart some reality on you; we last had a major freeze event in 2010. Joe and I lost about 1/2 of our crop that year, and the government declared a disaster for our area. That started a going-on-two-year bureaucratic nightmare that still hasn’t resulted in my seeing a single damn dime of money. Is the government going to just “mail me a check”? Probably, but who knows when; if it was really that dire, I’d be bankrupt looonnnngggg before those ultra efficient government employees decided to act. Oh, and the amount? Probably about 20 or 30 thousand dollars which yes, sound like a lot, but when your farm has gross revenue north of 300 thousand a year, it’s peanuts.

So that brings us to crop insurance, which most of us have, and all of us support. So here’s the basic rundown of how it works; every year in October, I have to decide if I want to have insurance for the next year; keep in mind, I’m still picking my current crop and now I need to start making decisions about my NEXT crop. And if I do want insurance, you pay now. Upfront. Like, 20 grand. And no, they don’t except monthly payments, food stamps, or American Express. It’s cash on the dash if you want to play. So let’s say we do have that catastrophic loss that we saw this year; first, it’s not like car insurance. They don’t run out, look at the damage, and pay. They wait; we MIGHT see an adjuster by July or August. And the check? Probably October 1, best case. So every year, you write this check, hoping you don’t freeze, or have hail, but if you do you have your crop insurance. Payday, right? Well, check out the math....

So here’s where the rubber meets the road. How much insurance money comes in, versus how much it costs to keep the lights on. So here it is:

Crop insurance revenue: roughly 1100 dollars per acre; I farm about 120 acres.

Cost of sprays, trimming, mowing, and maintenance: around 1300 dollars an acre.

Cost of payments for such minor things as: land, bank loans, machine payments, insurance, utilities, ect: around another 75 thousand dollars a year.

So do the math: at the end of the day, even this this “huge payout” I’m loosing my ass. Plain and simple. Crop insurance isn’t about a “giant payday”, it’s about keeping the wolves away and hopefully living to fight another day. 

And here’s where the shit really hits the fan; we have NO apples. NONE. ZERO. ZILCH. Ok, well, I did find enough for a pie the other day, but that’s about it. See, normally, a loss of 1/2 the crop would trigger an insurance payment; or a hail event would trigger it. In either case, you still have some apples to sell, for something. Even we lost 1/2 the crop, we’d have enough to sell, with the insurance proceeds, to break even. Not the case this year; the crop insurance check I’ll receive this fall is the only revenue my farm will have until about October....of 2013.

So let me put it in real terms for most people: you make 100,000 dollars per year. Due to a disaster, you aren’t going to receive your pay, but you have insurance. In the analogy, you would be receiving about 40,000 dollars. Could your family live on that? Think you’d have to cut back on anything? 

Right now, the farm bill is being re-written; the main debate focuses on direct payments and crop insurance. This farmer supports eliminating direct payments, and improving crop insurance. I hope you’ll do the same.