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Episode 394: Why Taxpayers Pay For Farmers' Insurance

Aug 14, 2012
Originally published on August 16, 2012 7:56 am

In spite of the drought, many U.S. farmers will do just fine this year. They are, after all, covered by crop insurance — a program that costs U.S. taxpayers $7 billion a year.

On today's show, we travel to Fairbury, Illinois. We meet three generations of farmers who tell us that, even without government-subsidized crop insurance, their farms would survive the drought.

So why does the government spend so much on crop insurance programs? We talk to an ag economist who has a surprising answer.

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In Fairbury, Ill., in the basement of the library, a bunch of guys in plaid are having civilization's oldest conversation. They're talking about the rain and the crops.

BRENT HONEGGER: Now, your area's a little bit better, isn't it?

UNIDENTIFIED MAN #1: Well, we've got - we've got some pretty bad-looking crops in areas.

JOFFE-WALT: This is all anyone is talking about - at the library, at the grocery store, at the grain elevator, on the sidewalk, anywhere in the Midwest - rain.

HONEGGER: Yeah. That's all there is to it. It didn't rain, so...


As you've heard, there is a huge drought going on. The U.S. Agriculture Department has designated disaster areas in more than half of the United States.

JOFFE-WALT: The corn out here in central Illinois is short, dry. It looks terrible.

CHACE: Now, I haven't been to the Midwest in quite some time. I've been here in New York. I also grew up in New York. And reading these stories about the drought, like, it freaks me out. This is supposedly the worst drought since 1956. And it just sounds really, really bad for farmers. Like, I feel for them.

JOFFE-WALT: OK. So that's clearly the headline that keeps being reported, that it's really, really bad for farmers. But there is this one fact that doesn't make it into the headlines. It wouldn't make for a very good headline, but it seems like an important fact to mention. And it is that most farmers have crop insurance. They have crop insurance that's paid for, in part, by our tax dollars. Corn, beans, wheat - they're all eligible for government-subsidized crop insurance. Eighty-four percent of the acres eligible are covered. So it seems like a weird thing that nobody is talking about that right now.

CHACE: So we're going to talk about it.


JOFFE-WALT: Hello, and welcome to PLANET MONEY. I'm Chana Joffe-Walt.

CHACE: I'm Zoe Chace. Today's show - government crop insurance. We spend about $7 billion a year helping farmers buy crop insurance, presumably for this exact situation, the drought that we're in right now.

JOFFE-WALT: And even before the drought, Congress had been working on plans for a new farm bill. And what's on the table, what looks likely to happen, is that crop insurance is going to be expanded. We're going to help farmers get even more crop insurance coverage.

CHACE: So if there was ever a moment to talk about how does this program work, should taxpayers pay for it, and should we make it even bigger - that moment is now.

JOFFE-WALT: Let's start with the rain talk. In the Fairbury library in Illinois in the basement, Brent Honegger's figured out basically how to draw a crowd. He's a crop insurance agent. And he is putting on an informational session about filing crop insurance claims. So any farmer that wants to know how to file a claim for some losses this year can show up.

HONEGGER: Come on in. Grab a cup of coffee.

UNIDENTIFIED MAN #2: How many people you expecting?

HONEGGER: I have no - you really don't know. But the way they're coming in - hi - way they're coming in, I would expect maybe quite a few. How you doing? Hey, guys.

JOFFE-WALT: This room holds 90 people. By 9 a.m., 110 have shown up. There's a bunch of milling around, back-patting. The room's full of all men, all white, and, I have to say, all pretty tight-lipped, shy guys with one notable exception.

JOHN TRAUB: I was wondering, who was that good-looking gal over there because I got an eye for - where are you from?

JOFFE-WALT: I'm from New York.

JOHN TRAUB: I am from New York. What's your trade? Lemonade. Show me some if you're not afraid.

JOFFE-WALT: This, Zoe, is Grandpa Traub. And he is standing with a collection of John and Jims - three generations of Traub farmers.



JOHN JACOB TRAUB: We're all - John, John and Jim.

JIM TRAUB: There's three Johns...

JOFFE-WALT: And you're Jim.

JIM TRAUB: ...And I'm Jim.

JOFFE-WALT: What's your last name, Jim?

JIM TRAUB: Traub. T-R-A-U-B. Same thing.

JOFFE-WALT: Oh, you are a Traub.

JIM TRAUB: Yeah. His grandpa, my grandpa - same guy.

JOFFE-WALT: All of the Traubs, everyone in this room is here to find out how to file a claim because everyone's corn and beans look terrible.

JIM TRAUB: I mean, this is a perfect example of the year that we need an insurance program.

CHACE: Chana, let's take a second here and explain exactly how crop insurance works. It's heavily subsidized by the government. That's the first thing. We spend $7 billion a year on it. And that money gets to guys like the Traubs in two ways. The government straight up just gives money to private companies so that they will offer crop insurance. So that's one way.

JOFFE-WALT: And the second way is that the government helps the farmer pay for that crop insurance. They help pay part of the farmer's premium. They actually pay more than half. So imagine Grandpa Traub pays a hundred dollars in premiums every month. The government is also paying $110.

CHACE: This is kind of incredible. It's like, with my car insurance, I have to pay a certain amount every couple months to the insurance company to keep the car insured. This is like the government picking up part of that tab. It's a pretty big deal.

JOFFE-WALT: And the Traubs know that. Jim Traub actually says while I'm talking to him - you help cover part of my premium, so thanks for that.

JIM TRAUB: Thank you.

JOFFE-WALT: You're welcome.

JIM TRAUB: (Laughter).

JOFFE-WALT: And do you think the government should be involved? Should they be helping you?

JIM TRAUB: Oh, I have an aversion to it. But they think they should've, you know, so you're not going to turn it down because we kind of - society is kind of that way. I don't see the government's going to be less involved in crop insurance.

JOHN JACOB TRAUB: I don't know. I don't know what the right answer to that is.

JOFFE-WALT: The youngest Traub, grandson Traub, jumps in at this point.

JOHN JACOB TRAUB: I think it's a good thing that there's a safety net out there so guys can continue farming when there's a drought like this.

JOFFE-WALT: It was actually kind of hard to find a person in this room who would talk to me on mic about why the government should subsidize crop insurance. But I did talk to a crop insurance agent, Donald Bielfeldt, in a town nearby. And he felt pretty strongly that the government should subsidize crop insurance.

DONALD BIELFELDT: The government has always taken care of the farmer since World War II. That's our livelihood. That's our livelihood.

JOFFE-WALT: That's whose livelihood?

BIELFELDT: Ours. Yours. When you go to the grocery store - do you go to the grocery store?

JOFFE-WALT: I do go to the grocery store.

BIELFELDT: OK. Well, that stuff doesn't automatically jump on the shelf. Somebody has to raise the cattle, hogs, chicken. I mean, that's what you live on.

JOFFE-WALT: And they wouldn't do that if I didn't pay for the crop insurance?

BIELFELDT: No, no, no. I mean, we have to protect the farmer that they don't all go broke. And that's what crop insurance is all about.

JOFFE-WALT: So I feel like for this argument to work, you have to ask the question, would these guys go broke without government crop insurance? And of the room full of farmers in the basement of the library, no one I talked to said this year, this one drought, would have put them out of business. The only guy who said something close to that was the Traub grandson. And he told me, you know, as a young guy new to the business, this year would have been really hard for him without insurance. But his uncle said, yeah, but most everyone, even the young guys in the room, would be OK.

JIM TRAUB: You really needed insurance more 40 years than you do today.


JIM TRAUB: Because we are a healthy farm economy by any measure right now.

JOFFE-WALT: Grandpa Traub leans in at this point, and he's more blunt.

JOHN TRAUB: Everyone in here is a millionaire.

JOFFE-WALT: Including you?

JOHN TRAUB: Yeah. Yeah.

JOFFE-WALT: How long does it takes to become a millionaire? Like, is your grandson one?

JOHN TRAUB: No, not quite. Not quite.

JOFFE-WALT: How long...

JOHN TRAUB: Oh, I'd say give him another two, three years. There's hundreds and hundreds of million dollars in this room in equity and farm land.

JOFFE-WALT: Zoe, this basement of a library really does not look like a room full of millionaires. There are no suits. Plaid is well-represented fashion choice in this room, as are suspenders. There's lots of muddy boots. But what grandpa Traub is saying is that these people all have land, and that land is worth a lot. Their businesses are worth a lot. And they can survive a year or two where things are hard.

CHACE: If you think about it, there's other businesses that don't do well when the weather's bad, like skiing, right? Ski resorts suffer when it doesn't snow. And allegedly, I heard that last ski season was terrible. But I would be shocked if the government called up ski resorts in Vermont in the Berkshires and was like, here you go, here's your insurance premium, like, no big deal. You didn't have a lot of skiers, here's a check for you to make up for it. That would be crazy.

JOFFE-WALT: And that's why economists really don't like farm subsidies. It seems like it's wasteful spending. And it seems pretty random who gets the money. Daniel Sumner is an agricultural economist at UC Davis.

DANIEL SUMNER: So mostly it's a transfer of income. We're taking a bunch of money from taxpayers and giving it to a relatively wealthy group of people.

CHACE: So why do we spend about $7 billion a year on helping what are typically relatively wealthy people who themselves say they feel weird about getting government money?

JOFFE-WALT: One reason is just that it sounds really good. I mean, it sounds nice to help farmers who are in a tough spot. They're struggling. There's a drought. Their crops look bad. And they are lucky enough to live in politically very important states. Just listen.


BARACK OBAMA: You know, right now, folks here in Iowa and across the heartland, we're suffering from one of the worst droughts in 50 years. Farmers, ranchers depend on a good crop season to pay the bills and put a roof over their heads. And I know things are tough right now. The best way to help these states is for the folks in Congress to pass a farm bill that not only helps farmers and ranchers respond to natural disasters, but also make some necessary reforms and gives farmers and ranchers some long-term certainty.

JOFFE-WALT: Daniel Sumner, the economist, has another sort of more nuanced theory about why year after year, Congress approves crop insurance and lots of other farm subsidy programs. He says, yes, the states are politically important, and that's a big reason why. But also, no one understands how these programs work. We don't just do the simple thing of writing checks and sending them to farmers. We do something much more complex. We don't just pay for the insurance. We help on the back end with the private insurance companies. And we help with the premiums in a way that's sort of hard to see how much that actually costs.

You know, we have a farm program called the direct payment program. And that used to be exactly what it sounds like. We would send checks to farmers. But then that was challenged. So we made it that they would get payments not for the acres that they farm, but for the acres that were farmed on their land with some historical year tied to some other prices from a different year. It's basically so complicated that very, very few people actually understand how the money moves from Washington into the hands of farmers.

CHACE: And all that complexity, the economist Sumner says, is by design. Every single time we add a new farm program or make an existing farm program more complicated, Sumner thinks of this guy that he met 30 years ago.

SUMNER: I met a gentleman whose name, I believe, was Norfleet Sugg. And he was president of the North Carolina Peanut Growers Association.

CHACE: Norfleet Sugg was on a panel of economists studying subsidies. And at some point, someone turned to him and said, you're an industry guy. You're actually in this field. Did we get it right?

SUMNER: And he said approximately this - look; the peanut program is so complicated there's only three people in the world that actually understand how it works. It's my job to keep it that way.

JOFFE-WALT: Daniel Sumner says this is when he first really understood why we have these farm programs. It's not just that they're complicated. It is that they are intentionally complicated.

SUMNER: He was saying to us, yeah, you're not going to be able to get it. As much as we tried, we weren't going to be able to capture the essence of these programs. They were just too complicated. Every time somebody proposes one more complicated government program, I can't help but think part of that is the less the average taxpayer or the average analyst can figure out what this thing is about - or the average congressman, for that matter - they throw up their hands and say, well, I guess the industry must know what they're talking about.

JOFFE-WALT: Where's Mr. Sugg now?

SUMNER: I don't have any idea. I was a very young man at the time, and he wasn't. So his nickname was Fleet, but I believe his full name was Norfleet.

NORFLEET SUGG: Norfleet. N-O-R-F-L-double E-T. People call me Fleet because I was in the Navy in World War II dealing with a fleet of ships (laughter).

JOFFE-WALT: This is how conversation moves with Fleet Sugg. I ask a small question and then he proceeds to lay out a whole section of his autobiography, which actually is incredibly charming. You know, he tells me first, he was president of the North Carolina Peanut Growers. And then he went to Washington, D.C., and he was head of the Agricultural Council of America.

SUGG: And I had an opportunity to meet with President Reagan in the Oval Office. In fact, the president of the United States at that time was accused of enjoying jelly beans. And I said, Mr. President, if you'll do me a favor, I'd like for you to move those jelly beans on your desk over to one side and let me send you some good North Carolina peanuts. And I did. And he enjoyed them.

JOFFE-WALT: I told Fleet Sugg that he really made an impression on an economist 30 years ago when he said that he was one of only three people who truly understood the way government supported peanut farmers and that it was his job to keep it that way.

Do you remember that?

SUGG: I don't specifically. But I'm not surprised.

JOFFE-WALT: It sounds like something you would say?

JOFFE-WALT: Yeah, because the peanut program was very complicated. The average person, even the average farmer, didn't fully understand it.

JOFFE-WALT: Fleet Sugg says that complexity wasn't his doing. That was the fault of Congress. The Department of Agriculture kept adding on to these programs. But he does say it sure was helpful because the complexity helped him win year after year and keep the peanut quota program in place. If nobody understands what you're doing, it's hard to push back. After Fleet Sugg retired, though, the peanut program went away.

SUGG: I've changed my priorities. I'm sitting here working with a bunch of grandchildren and great-grandchildren and enjoying life.

CHACE: The Norfleet Suggs of today, what they want is an even bigger crop insurance program. The farm bill gets rewritten every five years or so. Congress is about to pass a new one, probably next month. And what's being proposed is a brand new insurance program - an additional crop insurance program. It's called shallow loss. It would be free for eligible farmers. And it would cover a small portion of acres that aren't already covered by existing crop insurance.

JOFFE-WALT: And there is, of course, a complicated formula whereby if revenues fall below a three-year average, the government would guarantee revenues at 90 percent of whatever it decides is normal.

CHACE: (Laughter) I don't know what you're saying.

JOFFE-WALT: Yeah. And that - that is the point.


THE BABIES: (Singing) Hey, Caroline. Hey, Caroline.

CHACE: As always, please let us know what you thought of today's show. Send us an email -

JOFFE-WALT: is our website. I'm Chana Joffe-Walt.

CHACE: I'm Zoe Chace. Thanks for listening.


THE BABIES: (Singing) Caroline. Transcript provided by NPR, Copyright NPR.