Like every Midwestern farmer, Jerry Peckumn relies on a few things going right every season. Rain, but no deluge. Sunshine, but no heat wave. A timely cycling of the seasons.

Peckumn is a progressive, conservation-minded farmer who's deeply concerned about the impact of the changing climate on his farm. He knows nature isn't controllable and the weather is getting more erratic. So, like hundreds of thousands of American farmers, he relies on federal crop insurance.

"I'd quit farming if I didn't have crop insurance," Peckumn said, sitting at his kitchen table in central Iowa this summer, surrounded by corn and soybeans in every direction.

Iowa farmer Jerry Peckumn is conservation-minded in his practices and worries about the impact climate change is having on his land. Without crop insurance, he says, he would have to quit farming. Credit: Lacie Dotterweich/Center for Rural Affairs

As climate change stokes more extreme weather, American farms will depend on insurance even more. And as they do, the insurance system will exacerbate the risks of global warming, imposing lasting consequences on the nation's agricultural production, the global food supply and the climate itself.

This article is part of a series by InsideClimate News exploring agriculture's role in the global warming crisis and the influence of its largest lobbying group, the American Farm Bureau Federation. The story reveals an entrenched insurance system resistant to reforms that could help the nation's farmers battle climate change.

The Federal Crop Insurance Program is flawed in many ways. It discourages farming practices that build healthier soil by absorbing more carbon. It encourages monoculture farming, undermining the protection from extreme weather that comes from diversifying crops. It favors large, wealthy farms with bigger carbon footprints. And it keeps taxpayers on the hook for the ever-growing tab.

Scientists warn that time to tackle climate change is running out. They also agree that agriculture plays a critical role in solving the climate problem, so addressing these flaws in the program is especially urgent now.

"The current U.S. crop insurance program encourages farmers to adopt production practices that will not be sustainable in the face of climate change, and in the short term contribute to greenhouse gas emissions," said Vincent Smith, an agricultural economist at Montana State University who has written extensively about the crop insurance program. "Crop insurance encourages people to adopt production practices that are riskier, and by definition, reduce resiliency."

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For decades, the Farm Bureau, which calls itself the voice of the American farmer, has defended this status quo in the face of criticism that its views are colored by its connections to the insurance industry.

The crop insurance program doesn't just help farmers through hard times; it helps the insurance business thrive. The government projected earlier this year that companies selling crop insurance policies will get about $2.5 billion in subsidies from the program every year until 2028. Some of these companies have had direct financial ties to state Farm Bureau chapters—which are also connected to other insurance companies that sell policies of all kinds, including auto, home and health insurance.

The Farm Bureau network comprises "the largest agricultural organization in the country," said Austin Frerick, a reform advocate at the nonprofit Open Markets Institute who ran unsuccessfully for Congress in Iowa this year on an anti-Farm Bureau platform. "But it's really an insurance company."

As the Farm Bureau refuses to embrace climate science or accept government efforts to confront the problem, it continues to defend an insurance system that thwarts agriculture's role in solving the climate crisis.

"Anytime you subsidize risky behavior, you're muting what would normally be an incentive to not do that activity," said Joseph Glauber, a former chief economist for the U.S. Department of Agriculture (USDA).

The system has proven to be exceptionally durable, despite being regularly examined for budget cuts or other reforms.

"We're talking about public money. I can't think of another industry where the public subsidizes insurance to such an extent. It's not rational, and it's not a good value," said Laurie Ristino, a visiting scholar at George Washington University Law School and former attorney for the USDA. "What we're doing right now is perpetuating a system that's unsustainable."

'A Rich Man's Program,' Heavily Subsidized, with Costs to Rise

Federally backed insurance has become a cornerstone of American agriculture, and it has boomed in the past few decades. Today, it covers more than 300 million acres at a cost to the government of nearly $9 billion a year, on average, over the past five years.

The program protects farmers from both natural disasters and low market prices. The federal government sets the premiums, which have to cover payouts year after year. The government pays about 60 percent of the premiums; farmers pay about 40 percent.

Private insurers sell the policies. The government kicks in part of these companies' operating costs, too, and protects the insurance companies from some of their inevitable losses. It also sets their rate of return—their profit margins—currently at about 14 percent, which is unusually high compared to other types of insurers.

Farmers do face deductibles—their minor losses are not reimbursed. And insurers dip into their investments for some of the payouts. But neither the costs nor the benefits are evenly shared.

Notably, most of the subsidies and payouts now go to relatively wealthy farmers. More than 80 percent of the premium subsidies flow to the largest 20 percent of farms, and about 65 percent go to the largest 10 percent. That's mainly because bigger farms produce most of the crops, but also because the program's requirements are so complicated that smaller, diversified farms have a harder time qualifying for affordable rates.

"This is a rich man's program, not a poor, hardscrabble farmer's program," Smith said.

For well-insured farmers, insurance all but eliminates risks.

From 2000 to 2016, farmers as a group were paid $65 billion more for claims than they paid in premiums. For every dollar farmers have spent on the program on average, they have gotten more than $2 in return.

The costs are expected to rise for everyone—taxpayers, farmers and the insurance industry—amid increasingly erratic and extreme weather.

"Climate change will increase both the cost of obtaining insurance for producers, as well as the governmental outlay required to subsidize this purchase," concluded a study published in 2017 by researchers at Kansas State and Mississippi State universities.

Increasing damages from extreme weather have already wreaked havoc on another form of climate-related insurance, the National Flood Insurance Program. In recent years, the program has teetered at the brink of insolvency as it has faced rising seas, powerful storms and a Congress unable to abandon subsidized insurance that allows rebuilding right in harm's way.

In a 2014 report examining both flood and crop insurance, the Government Accountability Office said they face similar risks. The programs "may send policyholders signals that unintentionally encourage their vulnerability to climate change," the office wrote.

The National Climate Assessments, authoritative reports by the government's leading scientists, have been warning of the dangers to farmers. The most recent, published this year, declared that climate change-driven drought, heat and pestilence could reduce farm yields "at local, regional, and continental scales."

Widespread yield losses would drain the insurance coffers. But despite these mounting concerns, the crop insurance industry and agricultural groups, including the Farm Bureau, have repeatedly called for expanding the crop insurance program.

Blurred Boundaries Between Farm Bureau and Insurance

The federal crop insurance program was proposed by President Franklin D. Roosevelt after the Dust Bowl disaster of the 1930s. But insurance for farmers goes back even earlier and is intertwined with the Farm Bureau's origins.

County- and state-level farm bureaus started to sell insurance of all kinds to provide farmers the security they needed to thrive. Today, the words "farm" and "farm bureau" are part of the names of dozens of insurance companies that have their roots in actual farm bureaus. These companies are now separate entities from the Farm Bureau.

Still, the boundaries between the Farm Bureau and the insurance industry are often indistinguishable. In some cases, these entities share leadership, and their finances can overlap as well.

Farm Bureau President Zippy Duvall (standing) joined U.S. Agriculture Secretary Sonny Perdue (second from left) for a visit to Colorado earlier this year. Duvall is also president of the American Agricultural Insurance Company, which is approved by the Agriculture Department to provide subsidized crop insurance under the federal program. Credit: Lance Cheung/USDA

For example, the current head of the American Farm Bureau Federation, Vincent "Zippy" Duvall, is president of the American Agricultural Insurance Company, a billion-dollar enterprise that sells insurance policies and reinsures 24 Farm Bureau-affiliated insurance agencies. The company is among those approved by USDA to provide subsidized crop insurance under the federal program.

Craig Hill is the president of the Iowa Farm Bureau. It is the largest chapter in the country and has twice the income of the national Farm Bureau. He is also the chairman of FBL Financial, a $9 billion insurance company. The Iowa Farm Bureau's assets of $1.5 billion are largely from its holdings in FBL Financial.

Farm Bureau officials declined to be interviewed for this article. In an emailed response, Will Rodger, a Farm Bureau spokesman, said, "AFBF has nothing to do with the day-to-day operations of our states' insurance companies. They are for-profit entities entirely separate from our states' non-profit Farm Bureaus."

In the 1960s, U.S. Rep. Joseph Resnick, a New York Democrat who ridiculed the agriculture lobby as "the right wing in overalls," held hearings to explore the Farm Bureau's links to the insurance industry.

"The Farm Bureau has not been representing the American farmer, it has been using him to build one of the largest insurance and financial empires in the United States," Resnick declared during a 1967 hearing. He eventually lost the support of his colleagues who were friendlier to the farm lobby.

Decades later, the IRS tried to tax the income that the Farm Bureau earned when people who weren't farmers joined the group to sign up for other types of insurance that its affiliates also offered.

The agency asserted in the 1990s that the Farm Bureau ought to pay "unrelated business income" taxes on dues paid by these "associate members" who account for the bulk of the Farm Bureau's 6 million "member families." There are only about 2 million American farms.

But Congress reversed the IRS, handing a victory to the farm and insurance lobbies and demonstrating the combined potency of their grassroots influence and campaign cash.

The federal crop insurance program remained relatively small until Congress voted to lure more farmers in.

In 1980, Congress passed a bill allowing private companies to offer federally backed policies administered by the U.S. Department of Agriculture, inaugurating today's public-private partnership that provides crop insurance.

After crop disasters forced costly emergency relief payments, Congress again acted—in 1994 and 2000—to increase premium subsidies, spurring yet more farmers to get insured. Lawmakers hoped that would cut the need for emergency relief.

But it's not clear whether the strategy has paid off. According to the Environmental Working Group, an advocacy organization that favors reforming the system, crop insurance has turned out to be more expensive for taxpayers than the government disaster aid payments it was intended to replace.

Smith says it's not surprising that agribusiness lobbied to expand the program, because it is "very lucrative."

Under the agreement between the government and the crop insurance companies, the government not only pays most of the premiums and covers some of the overhead—it lets insurance companies keep most of the rewards while it picks up most of the risks.

"Huge winners from this program are the private crop insurance companies, the crop insurance agents and the reinsurance companies," Smith said.

How Insurance Encourages Riskier Behavior

Most economists and environmental groups agree that farmers deserve insurance protection.

"We don't want to discourage people from farming," Glauber said.

But insurance changes the way people act because it lowers the consequences of taking risks.

Hurricane Harvey's extreme rainfall left large areas of Gulf Coast farmland, along with farm infrastructure and equipment, under water in 2017. In 2018, Hurricanes Florence and Michael flooded farms across the Carolinas. Credit: Staff Sgt. Daniel J. Martinez/U.S. Air National Guard

In its reporting on the federal risks from the crop insurance subsidies, the GAO noted that farmers "do not bear the true cost of their risk of loss due to weather related events, such as drought—which could affect their farming decisions."

"For example," it explained, "if a farmer has to make a decision about whether to farm land that may pose a higher risk of loss, the farmer is less likely to do so if he or she would have to pay a full rather than a subsidized insurance premium."

Academic researchers say that crop insurance spurs farmers to plant on marginal land that's more prone to erosion and flooding and in more environmentally sensitive areas, such as wetlands. This happens because they know they can recoup their losses even if their yields are poor.

"The upshot is: If you take the risk away from a risk-averse person, they will expand production," said Keith Coble, an agricultural economist at Mississippi State University who has written extensively about crop insurance. "So, conceptually, if you subsidize that, there's an even stronger effect."

Because most farmers opt for "revenue" insurance, the program encourages planting regardless of supply and demand. Revenue coverage pays out when income drops, which can happen either when disaster strikes or when bumper crops create oversupply.

"That's the insanity of the system," said Ben Anderson, a project organizer with the Land Stewardship Project, which has proposed changes to the crop insurance program. "If prices are high, you grow more corn. If prices are low, you grow more corn. A normal economic system would say: Switch crops. Grow wheat. Diversify. But this isn't a market. It's a subsidized system."

Though the same applies to the most widely insured crops—soybeans, wheat and cotton—corn accounts for more than 40 percent of the $100 billion in insurance coverage.

These major commodity crops—particularly corn—are grown in vast monocultures requiring more fertilizer, pesticide and energy use. They are responsible for the bulk of greenhouse gas emissions from agriculture.

"Crop insurance is a massive subsidy, and if you subsidize one crop more than another, then farmers move to that crop," said Dan Sumner, director of the Agricultural Issues Center at the University of California-Davis, who has researched the impact of crop insurance on farmers' decisions.

Insurance Masks the Economic Impact of Climate Change

Even though future risks are rising over the long term, the crop insurance program does not take models of the changing climate into account. The premiums that the farmers pay, the returns that insurers reap, and the subsidies borne by the taxpayers are based on the short-term outlook and the recent past.

That's because rates are set on a yearly basis, so climate models that project warming decades into the future are not part of the formula.

The program does not require insured farms to take steps that minimize their own climate risks, the way home insurance requires building to code or adding protective elements like storm shutters. Nor does it require them to adopt climate-friendly practices that have great potential to store carbon in the soil, which can help to stabilize the global climate.

"Practices like cover crops, that improve soil health, or having multiple crops in your rotation—those are time-tested ways that farmers manage their risk," said Claire O'Connor of the Natural Resources Defense Council, which has pressed unsuccessfully for changes in the law. "But the way crop insurance is, these are missed opportunities."

The crop insurance program, she says, effectively disguises the impact of climate change on farming and on crop insurance rates. The coverage farmers get is calculated on their average yield over a period of years. But under this provision, they can throw out bad years—when droughts strike or floods inundate fields—from their historical calculations.

"Yield exclusion is sort of like accident forgiveness for car insurance. It allows farmers to exclude low-yield years from their production history, effectively preserving a higher coverage level at a lower price for those farmers," O'Connor said. "By masking the reality that extreme weather is the new normal, yield exclusion encourages farmers to continue on as if nothing was different."

The most recent farm bills, in 2014 and 2018, created some programs that conservation advocates sought. These include a program that allows farmers to insure diversified farms rather than just individual crops, defining the restrictions around certain conservation practices and requiring conservation steps on certain lands in exchange for subsidies.

But, on the whole, the crop insurance system perseveres.

"They made some tweaks," said Ben Lilliston, director of the Institute for Agriculture and Trade Policy, a Minnesota-based farm research group. "But they're not the game-changers or structural changes where you give concrete incentives to farmers to do more climate-friendly practices. It's not anywhere close to where we need to get."