When Insuring Crops Ensures Climate Mistakes

Welcome to summer. This should be a hot one. Which means bad news for cherries, grapes, pistachios, almonds and most of California’s other cash crops that suffer in extreme heat.

The story of this summer, and of many more to come, is in the crop insurance reports; they make for dense reading, but they reveal the deep vulnerabilities of California’s multibillion dollar agriculture industry to the changing climate. The reports show how a well-intended New Deal-era program intended to shield farmers from losses now incentivizes growing cash crops in ways that are not optimal for current climate realities.
 

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Crop insurance is just about as close to the ground as you can get to see the cost of climate change on California’s crops — many of which can not take the heat. Rising temperatures are now the highest risk on the list of insurable conditions offered through the Department of Agriculture’s Risk Management Agency, which reads like a list of biblical plagues. Heat is followed by Freeze, Frost, Fire, Hail, Excess Wind and Drought.

Earlier this month, the Environmental Working Group (EWG) reported that heat is, by far, the largest single contributor to crop loss in California. The group pored through 20 years of insurance data. For heat alone, crop insurance payouts in the state amounted to $1.1 billion, and heat was the leading cause of crop loss from 2000 to 2021. A close second in the indemnity sweepstakes was “excess moisture,” otherwise known as rain; it’s also known as the second cousin of heat, since the two are intertwined in the twisted helix of climate deranged weather.

As we head into another summer with already record-breaking heat, let’s consider what insurers with money on the line can tell us about the security of our food supply, a huge portion of which is supplied by California and other Western states.
 

Over the past two decades, taxpayers have subsidized, on average, 62% of all farm insurance premiums.

 
According to NOAA, the average annual temperature in San Joaquin County, the center of California agriculture in the Central Valley, rose by 3.7 degrees Fahrenheit from 1900 to 2022, and is on course to rise at an even faster rate in the coming decades. Other counties in the state show similar trajectories. The most recent National Climate Assessment predicts temperatures in the Southwest could rise as much as 8.6 degrees Fahrenheit by 2100 under worst-case emission scenarios.

The heat has been devastating to California’s fabled fruit and nut crops. According to the USDA’s Risk Management Agency, the state’s premier fruits and nuts suffered the most losses due to heat, and thus received the highest insurance payouts of all crops. They include pistachios ($220 million), grapes ($176 million), cherries ($65 million), almonds ($48 million) and oranges ($22 million). Fourteen of the top-15 recipients of multimillion dollar payouts are tree crops, an important detail since trees can’t move. They’re stuck where they’re planted, which oftentimes was years ago, before the current weather patterns, or lack of patterns, became clear. Tomatoes ($59 million), the only nontree crop in that top 15, are notoriously sensitive to temperature. One reason for the stark dropoff in yields for pistachios and other tree crops has been the steady upswing in winter temperatures that denies trees the period known as low chill, when the temperature drops and trees slow their metabolism in preparation for a spring ripening.

Crop insurance differs from commercial insurance in ways that are becoming more and more significant as the climate turns more volatile. First, private insurers can’t lose; the government subsidizes their losses. Insurance premiums for farmers are subsidized as well. The EWG found that over the past two decades, taxpayers have covered, on average, 62% of all premiums.

Does the USDA leverage this critical role as crop reinsurer to reduce American agriculture’s vulnerability to ever more common climate extremes?

Excellent question.

Perverse incentives in the taxpayer funded crop insurance system have ensured that farmers keep repeating the same mistakes as the climate changes around them (and the rest of us).
 

Crop insurance now serves to bolster large mono-crop farms that rely on heavy doses of petrochemical based fertilizers and pesticides to ensure their survival.

 
The crop insurance system was launched by President Franklin D. Roosevelt, who wanted to ensure that American farmers were never again forced off the land when they faced a bad year — as occurred during the Dust Bowl in the 1930s. He and his secretary of agriculture, Henry Wallace, designed a program that offered farmers a safety net for the bad years that are inevitable in farming. Those were in the days when there were some 6.8 million farms, most of them owned and worked on by the families who lived on them.

But now, almost 100 years later, those same policies prop up an agriculture dominated by a small group of often absentee landowners. By 2022, the number of American farms had plummeted to just 2 million, while the average farm size more than doubled between the 1930s and the early 1970s. Many farms are now owned by large agribusiness companies. Nationwide, the top 4% of farms in terms of size account for more than 50% of all U.S. cropland; 39% of the nation’s farmland is rented, which generally means the owners don’t live on it. In California, the largest 5% of farms — those larger than 477 acres — account for just over half of all of the state’s cropland, according to this study released by the University of California Cooperative Extension.

Crop insurance now serves to bolster these large mono-crop farms that rely on heavy doses of petrochemical based fertilizers and pesticides to ensure their survival. Thus, they both contribute to global warming — agriculture accounts for at least 10% of U.S. greenhouse gas emissions — and are a victim of it, as indicated by those crop insurance stats.

Masking the Losses

While a flurry of stories have reported on the flight of private insurers from the state due to increasing concerns about the expense of fires and floods, the public-private alliance of crop insurers is limited in its ability to integrate the scale of climate risk into its scale of premiums. 

Unlike commercial insurers, the USDA is prohibited by statute from using models of future conditions to determine the price of premiums; it can only look backward to determine the likelihood of risks. “But you can’t look at the past 20 years anymore and say that’s going to be the next 20 years,” says Anne Schechinger, Midwest director for the EWG and author of the latest report, and of other detailed analyses of the federal crop insurance system. In other words, at a time of increasing volatility, of records broken in every sphere of the weather cycle, the agency most responsible for the health of the food system can look only to the past to determine the range of risks that farmers are likely to face.

In a detailed audit of the crop insurance system, the Government Accountability Office identified another factor limiting the government from making an accurate assessment of climate risks: Insurers are prohibited from raising rates by more than 20%. The GAO concluded that this restriction is no longer “actuarially sound,” and has cost the government tens of billions of dollars more in losses than if it had been able to charge market rates.
 

The current crop insurance system reinforces farming practices that are undermining, rather than enhancing, resilience to the changing climate conditions.

 
And there’s yet another way in which insurance intended to shield farmers from catastrophe has worked to shield them from climate consequences. Farmers can buy what’s known as revenue insurance, intended to guarantee a level of minimum income. They are permitted to eliminate as many as seven of the last 15 years of revenue in order to establish a baseline insurable income. That means they can exclude the worst years of performance. In practice, the so-called yield exclusion permits the most dire consequences of climate change, which are becoming more common by the day, to be excluded from their income calculus. 

The principle of a safety net for farmers is an important one. No farmer should be forced to leave their land due to a bad year or set of years. But the current crop insurance system reinforces farming practices that are undermining, rather than enhancing, resilience to the changing conditions — and thus the chances that there will have to be payouts. Those practices include expanding farms into marginally productive lands and the intensive application of chemical enhancements that depletes the soil. There are few incentives to change as climate stresses accelerate. This differs dramatically from, say, the homeowners and others impacted by the private insurance company exodus, which has prompted a reassessment of which lands are most appropriate for building. 

The impacts are already being felt in higher food prices, declining yields, new pests and plant diseases, all showing up in the fields even if actuaries are not there to document them. All are seeds for future stories gleaned from the increasingly precarious crop insurance system. The EWG, along with other environmental NGOs, is proposing reform measures like supporting the planting of cover crops to enhance soil quality or compensating farmers for taking marginal lands out of production that could turn crop insurers into levers of change. All to be considered in the upcoming farm bill negotiations, commencing in the fall. We’ll be following those. 

In the meantime, taken together, all these and other policies indicate the often hidden ways in which the USDA has been masking the risks posed by climate change to farmers. Which is another way of subsidizing the use of fossil fuels.

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