Excerpt from ‘The Farm Bill: A Citizen’s Guide’ by Dan Imhoff (with Christina Badaracco) which will be released in January, 2019, by Island Press.


In June 2016, the United Kingdom (UK) voted in a referendum to leave the European Union, a separation nick-named ‘Brexit’. While the decision remains controversial, the process of divorcing the UK’s legal and judicial system from Brussels and returning it to Westminster has begun. After over forty years of integration, the process is challenging. The withdrawal impacts every aspect of British life, from security and pharmaceutical regulation, to air travel and university funding.

The return of powers from Brussels also provides an opportunity to rethink the UK’s approach to agricultural supports. While often portrayed as such, providing financial support to farmers is not about subsidising production. Taxpayer money is not being dished out to farmers to encourage them to increase their yields. Nor is it being handed out to artificially prop up a failing industry that would otherwise falter without direct government intervention.

When implemented in a holistic and visionary way, farm payments can support the positive contributions that farmers make to the environment, to rural economies, and to society. Farm supports can encourage farmers to adopt practices that promote healthy soils, filter runoff, reduce chemical use, and expand natural habitats within and around farms. They can maintain levels of employment to promote rural communities and preserve the heritage of the countryside. They can increase the affordability and availability of locally produced food in nearby cities, promoting economic resilience and improving public health.

Currently, UK farmers benefit from the European Union’s Common Agricultural Policy (CAP) that divides payments into area-based basic payments (known as Pillar1) and environmental payments for ecosystem services, such as cover-cropping, hedgerow maintenance, and forest conservation (known as Pillar2). The UK government announced its intention to end Pillar1 payments and to transfer the majority of the money into Pillar2 payments with the goal of promoting a greener vision of agriculture post-Brexit.

Such a shift from production to stewardship subsidies would signal fundamental changes in the system in which UK farmers operate. Risks come from the potentially damaging economic impacts of Brexit, as well as from increasing extreme weather events caused by climate change. The combination of uncertain economic and growing conditions means farmers could face increased production pressures. However, supporting the establishment of programs to help landowners increase deep-rooted groundcover and expand habitats within farms and rural landscapes could help to mitigate the effects of extreme storm events. Even so, the UK government is considering introducing crop insurance into post-Brexit UK agricultural policy.

Crop insurance (CI) programs are often cited as a key tool for managing risk. CI is a financial method by which an agricultural crop can be insured against potential future harvest loss. While the goal of reducing volatility in the food system is essential, most of the CI schemes that have been implemented around the world have been shown to be both environmentally damaging and financially irresponsible.

The United States and Canada have the world’s largest and most well-established models of CI. With the UK now considering developing its own insurance programs, it’s important to take stock of the impacts of CI on farming globally and study its ecological consequences. Blindly walking down the path of CI without fully considering the long-term impacts would be short-sighted.

Studies show that CI has significant negative environmental impacts due to the resulting adoption of riskier farming practices, more intensive methods, and the expansion of monoculture crop cultivation. Study after study has found that CI programs directly correlate with land-use change. Their function is to transfer risk, so farmers have more incentive to plant on marginally productive and environmentally sensitive lands to the detriment of the local ecosystem. If crops fail, subsidised insurance programs will compensate.

The wholehearted adoption of CI has already had significant repercussions in the United States and contributed to the loss of more than 23 million acres of grassland, shrubland, and wetlands between 2008 and 2011. In the Midwest, researchers have observed higher rates of fertiliser and pesticide use on corn farms that had greater program participation. These increases resulted from farmers feeling wealthier due to the financial security provided by CI and were therefore willing to spend more on agrichemicals, a phenomenon known as the “psychological wealth effect.” The studies determined that ending federal CI programs would reduce nitrogen fertiliser use by 7 to 10 percent.

At a national economic level, crop insurance is, simply, fiscally irresponsible. The public, rather than farmers, bears the majority of the financial burden of CI since it’s a government-funded program. Farmers pay only a minor share of the premium, meaning they are likely to financially benefit, regardless of yield loss or mismanagement, creating a classic moral hazard. In the United States, the average rate of return on crop insurance for all farmers in all states between 2000 and 2014 was 120 percent per year. This means that the average US farmers who held a federal crop insurance policy, got back more money from the government than they paid into the policy in the first place.

The UK government would do well to explore other options that can support both farmers and the environment. The existing models of crop insurance have done little to support a more sustainable vision of agriculture and have been a drain on government coffers. The desire to help farmers mitigate the economic gap caused by dissolving Pillar 1 funding and reduce the risk caused by a changing climate is noble. However, crop insurance is not the answer and the UK government must strive to find another solution.

In the United States, farmers face another important impact caused by crop insurance programs: they encourage increased production and higher farmgate yields. By driving up supply, the prices often fall as the market becomes saturated, which often leads to lower prices and ultimately does not work in the producer’s favour since the profitability of his crop per acre would drop. That means that the US government is subsidising poor farming practices and oversaturated markets through its support of CI.

References

  • Babcock, Bruce. “Crop Insurance: A Lottery That’s a Sure Bet.” Environmental Working Group. 2016.
  • Eagle, Alison J., James Rude, and Peter C. Boxali. “Agricultural Support Policy in Canada: What Are the Environmental Consequences?” NRC Research Press 24, no. 1 (2016): 13–24.
  • Faber, Scott, Soren Rundquist, and Tim Male. “Ploughed Under: How Crop Subsidies Contribute to Massive Habitat Losses.” Environmental Working Group. 2012.
  • Hennessy, David A. “The Production Effects of Agricultural Income Support Policies under Uncertainty.” American Journal of Agricultural Economics 80, no. 1 (1998): 46–57.
  • Horowitz, John K. “Insurance, Moral Hazard, and Chemical Use in Agriculture.” American Journal of Agricultural Economics 75, no. 4 (1993): 926–35.

Photograph: Dave Gunn

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