Crop Insurance Today Third Quarter 2021 - 1

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Considerations
5 Through 8: Redux
This is the third in a four-part series.
Tom Zacharias, NCIS President
This is the third piece in a four-part series
The reality is that the farm
safety net provides for both
income support and risk
management. Striking a
balance between the two is
a function of the current
political and economic
conditions facing agriculture
at a given point in time.
titled " Reconsidering the Considerations. " Followers
of TODAY® magazine should recall that
the motivation for this series was to revisit earlier
" Considerations " 1
of the crop insurance program
that took place during the deliberations of the
2014 Farm Bill. In our last issue we " Considered "
both public interest and taxpayer support for the
U.S. farm safety net, along with the advantages of
the ex ante (before the event) nature of the U.S.
crop insurance program.
In this edition we will discuss the Considerations
five through eight: Is the safety net income
support or risk management; What is the role
of area versus individual plans; Is current risk
sharing optimal; and should the safety net be
incentivized?
5. Is the safety net income support or risk
management?
The reality is that the farm safety net provides
for both income support and risk management.
Striking a balance between the two is a function
of the current political and economic conditions
facing agriculture at a given point in time. The
distinction between income support and risk
management seems apparent-raising income
versus redistributing income across time.
However, this distinction may have blurred
1 Zacharias, Thomas P. and Keith J. Collins,
" Ten Considerations Regarding the Role of
Crop Insurance in the Agricultural Safety
Net. " The piece was published in Choices
Magazine, a publication of the AAEA.
over the past several years. Consider the testimony
of Dr. Gary Schnitkey, University of Illinois,
on June 23, 2021, during the House Agriculture
General Farm Commodities and Risk Management
Subcommittee " Hearing to " Review the
Efficacy of the Farm Safety Net. "
" According to the Economic Research Service,
net farm income...fell from a high of $140 billion
in 2012 to an average of $74 billion from 2016 to
2019. Incomes rebounded to a forecast of $123 billion
in 2020. Trade disputes, weather issues, along
with high yields contributing to abundant supply
led to these lower incomes. Without the Federal
safety net, farm incomes would have been much
lower. Payments for farm safety net programs and
net insurance payments were 20% of net income in
2018, 33% in 2019, and 59% in 2020. "
In difficult times it is apparent that the farm
safety net can and will provide both income support
and risk management. This is consistent
with the pervasive view that there is public interest
and public support for a financially stable
agricultural economy. The farm safety net role for
crop insurance is to provide risk management in
an ex ante fashion. Crop insurance has successfully
demonstrated that it can perform this role
and is popular and trusted by farmers because
it is affordable, widely available, and economically
viable. It gives farmers the tools they need
to tackle the challenges of today and tomorrow.
During a recent subcommittee hearing within
the House Agriculture Committee, farmers and
lawmakers alike described crop insurance as an
indispensable risk management tool that continues
to grow in necessity as agriculture deals
Continued on page 27
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Crop Insurance Today Third Quarter 2021

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