New study finds extreme weather is increasingly costing taxpayers
A report released this week from the Environmental Working Groupfound that crop loss linked to climate change accounted for more than 70% of crop insurance payouts since 2001. Anne Schechinger is the EWG Midwest director and authored the report. She spoke with Ozarks at Large's Daniel Caruth about her findings.
The following is an edited transcript of their conversation.
Anne Schechinger: Essentially what we found is that crop insurance payouts were over $118 billion between 2001 and 2022 for these top five weather related causes of loss, and we also found that payments for each of these causes of loss more than doubled over that time. So essentially, there's a huge amount of money going out through the crop insurance program to farmers, because of extreme weather that's largely tied to climate change. And those payments are increasing over time, the climate crisis will very likely lead to even larger payments in the future. So now when we are looking into Farm Bill, at the federal level, it's a really important chance to reform the program to encourage farmers to adapt to climate change.
Daniel Caruth: Talking about those hotspots, can you break down just where those were and what you found about each of those spots when you were looking at them?
AS: We looked at drought, excess moisture, hail, heat and freeze, those were the top five causes of loss with the most payments. So for drought, drought paid out over $56 billion, and almost 3/4 of the drought payments went to 10 states in the Great Plains in the Midwest. But then with drought, we also saw some other areas. Some counties outside of these 10 states also had headwaters payments, and then excess moisture and precipitation payouts were around $40 billion. And over half of those payments were concentrated in just six states: North Dakota, Minnesota, South Dakota, Iowa, Illinois and Missouri. But then there were also counties in certain areas like along the Mississippi River that had really large payments. So Arkansas specifically the counties along the Mississippi River and Arkansas were one of the excess moisture hotspots as well. And then heat and freezing payments were really interesting because they kept kind of the same hotspots. So heat payments, were around $8 billion for freeze payments were around $4.7 billion. And for both of those, the hotspots included California, Texas, Kansas and Washington.
DC: How does someone go about, I guess making a claim to say that this is a loss? How do these insurance policies work, and I guess how's the have they changed in this time period from 2001 to now?
AS: So the insurance policies work by a farmer buying a policy and the policies are highly subsidized by taxpayers. So on average, a farmer only has to pay for 37% of the premium. So 37% of the cost of of their policy, and then taxpayers subsidize the rest, so around 63%, and so they pay for a certain amount of coverage. So if you're buying a revenue policy, you know, say you choose 70% coverage, then you have to have a loss of 30% of your revenue in order to to get that crop insurance payment, or with yield is the same way, if you ensure you know, 80% of your yield, and you have a 20% yield loss, then that would trigger a payment,
DC: And how do these take into account? Or have they taken into account climate change and within the policy?
AS: So, within the policy, they don't really take climate change into account and that's one of the main issues that we're seeing with this program, you know, all of the policies, they're just for one year. So when you are continuously every year, getting a new crop insurance policy, that this incentivizes farmers to be thinking about doing adaptation techniques on their farm that can help them you know, in five years and 10 years, so that that annual system is one of the deterrence for farmers to adapt to climate change. And also, you know, the subsidy is also part of the reason why the program is dis-incentivizing farmers from adapting, adapting to climate change. The policies are so highly subsidized that when you don't have to take on the total risk of your farm, you're more likely to farm in a riskier way or to continue doing business as usual, even though you're having losses from extreme weather more and more.
DC: I know you talked about counties in Arkansas along the Mississippi River, that was where we saw a lot of the big payments come from. Could you break down just some more data from Arkansas specifically that you may have found?
AS: In Arkansas, the total payments for the crop insurance program between 2001 and 2022? Were around $2.65 billion. Essentially, most of the money that was paid to farmers for their crop insurance program in Arkansas over this time came from these five weather-related causes of loss. And the big one really was excess moisture. So excess moisture made up 71% Of all the crop insurance payments in Arkansas across all the causes of loss.
DC: If you could break down for me just sort of how this program is funded. Where does the money come from? And sort of? Yeah, how does it all work?
AS: Yeah, so the program is it's it's really different than most other federal programs. So it's what they consider a public private partnership. So the program is run through the USDA, but it's actually private insurance companies that sell and service their crop insurance policies. So the program is really highly subsidized total premiums that farmers pay, they only pay 37% of their crop insurance premium and taxpayers pay 63%. And then when farmers have a loss, the payout money comes from those premiums that both the farmers and the taxpayers paid into. But there are years where you know, the payouts are going to be larger than the premium and then usually, taxpayers are on the hook for a lot of that extra money. And if there are more premiums than there are payouts. So you know, that's extra money, you would think that would go back to taxpayers, but it actually goes to the the crop insurance companies, we ended up sending over a billion dollars every year as taxpayers to these 14 crop insurance companies. And 10 of those 14 companies are publicly traded major corporations.
DC: looking at this data, putting this report out what is kind of the hope, like the remedies that you guys are looking at and hoping will maybe give better insurance policies, create a better crop insurance program be more equitable, you know, what are the the solutions that this report is hoping to see out?
AS: Reforming how premiums are calculated to reflect extreme weather, and actually lowering premiums, subsidies and higher risk lands that are most vulnerable to climate change? You know, those are two things that Congress could change in the farm bill that could motivate farmers to better adapt to climate change and reduce taxpayer costs. So it's not just the farm bill in Congress. But there are other things that the USDA can do today that could help reform that program to encourage farmers to become more resilient.
DC: Do you know what any of those options would be or what something that could happen today, that would really impact that?
AS: We do. So, in order to qualify for crop insurance policies, farmers have to do what's called good farming practices. And these farming practices are decided by like State Extension officers. So State University employees, agronomics experts, they decide in your in your county, what a good farming practice is, depending on your county, there are conservation practices that farmers want to do, but aren't considered a good farming practice by you know, your local Extension officer. So those conservation practices might actually help a farm become more resilient to climate change. But then the experts maybe don't have enough research on it, or don't consider it to be a good farming practice. And then a farmer can't do those and still qualify for crop insurance. So the USDA could say, you know, all of their natural resources, Conservation Service conservation practices could qualify as good farming practices, so farmers could do any of them and still qualify for crop insurance in order to help encourage farmers to adapt some of those practices that could previously disqualify them from crop insurance.
DC: And looking ahead, looking forward. I would imagine a lot of farmers who are applying for this insurance would say they'd be afraid of a period of growth or a period of transition, to say, maybe we'll lose money, this would be bad for us in the short term. So why is it important to make these changes to adopt new practices for the long term? Why is it important?
AS: I think it's it's very important for taxpayers, of course, because this program is just going to get more and more expensive, because of climate change. But it's also important for farmers, because you know, if they want to be here in 20 years, 30 years, they're going to need to be making changes to make their farms more resilient to adapt to extreme weather from climate change. But also, because we have already seen through our analysis, that these crop insurance costs have gone up over time, we really believe they're going to keep going up in the future. And that's not just for taxpayers, but likely the cost will also go up for farmers, adapting could be a little painful, potentially in the short term, but in the long term is going to have more benefits for farmers financially, and for the resilience of their farms.
DC: And then, I don't know, were there any emerging trends or anything that you saw that surprised you?
AS: So, looked at how much payments went up over time between 2001 and 2022 for the five weather-related causes of loss. And what surprised me the most was that he had the largest increase in payments over time at over 1,000% nationally. So you know, I'm in the Midwest, I think a lot about excess moisture and drought, but he actually had the biggest increase in payments over that timeframe. So I think that's something we definitely all need to be keeping an eye on is what's going to be happening with these extreme temperatures going forward and how that impacts our food supply.