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Teaching Consumers About Risk


Anyone who works in or around agriculture knows all too well that farming is a risky business.  Yet the focus is often on the physical risk, not the financial. This week is National Farm Safety and Health Week; and there is a lot of attention being paid to the considerable physical risk that farmers and farm families take each year, especially during the harvest season.  The concept of the financial risk that farmers take each year is not well understood or appreciated by those outside of  agriculture, and that also needs to be addressed.


A man who takes all the money out of his bank account, then goes and borrows twice that amount, takes all the cash and goes to Las Vegas and places it on a single spin of a roulette wheel would be diagnosed with a gambling problem.  Yet, this what farmers do every year.  As the financial risks have escalated in recent years, farmers have started using tools to help protect themselves from some of this risk.  Now they are being criticized for trying to put a bit of a safety net under their operations. Ironically, the criticism is coming from people who would never dream of taking the kind of risks they are asking farmers to take.


In 2012, farmers invested more than $4.1 billion to purchase more than 1.2 million crop insurance policies, protecting 128 different crops.  It is a good thing they did, too, because the drought of 1012 did significant damage to many of those crops. Without the insurance payments these farmers received, many would not be in business today to produce a crop for 2013. This most recent example of how crop insurance benefits farmers and consumers has been lost on most consumers and especially on the critics, who see it as a waste of taxpayer dollars and a boondoggle for insurance companies.


These critics and the often uninformed media, focus on the amount of money the federal government put into the crop insurance program.  The ignore the fact that farmers put in far more and pay most of the premiums for the policies. Since the year 2000, farmers have paid in over $30 billion to purchase crop insurance coverage.


The program is portrayed by the media as a way for insurance companies to make money from US taxpayers. In reality, firms that offer crop insurance make money less often that other types of insurance companies. Crop insurance companies lost money in 2012, as well as in 1983, 1984, 1988, 1993, and 2002. That is in sharp contrast to providers of everyday property and casualty insurance, which have only lost money once over the past 50 years, in 2001– the year of the 9-11 attacks.


The real tragedy, however, is how farmers are pictured in regards to crop insurance.  During 2012, more than one article suggested farmers were “praying for a drought rather than rain” so they could collect on insurance.  This shows how misunderstood the farmer is.


The concept of risk is something farmers and consumers understand. The breakdown occurs over the amount of risk a farmer takes and how at risk consumers are without programs like crop insurance. Consumers have never been significantly impacted by major crop failure. A widespread and prolonged food shortage has never been experienced by today’s shopper.  While crop insurance will not prevent a crop disaster, it will insure that those who produce the food will survive financially to produce again the next year.


US taxpayers have a vested interest in the success of the American farmer and the production of a safe and adequate food supply. Thus, the involvement of the federal government in the crop insurance program is totally reasonable and justifiable.


As agriculture is showcased to the non-farm public, the element of risk also needs to be included. Consumers must come to appreciate the amount of risk a farmer takes and, by not supporting farm policies like crop insurance, how much risk consumers are taking.


by Gary Truitt