Drought and heat damage crop insurance payments top $12B

Nearly $12.3 billion will be paid to U.S. farmers for losses incurred last year due to drought, high temperatures and failed irrigation, combined, according to figures from the Agriculture Department's Risk Management Agency (RMA).

Illinois crop growers will receive $2.2 billion for drought losses and $73.2 million for heat-related losses. Iowa will receive the second-highest drought indemnities, with $1.6 billion, followed by Nebraska ($1.1 billion), Kansas ($980.8 million) and South Dakota ($931.7 million). Missouri, Indiana, Texas, Wisconsin and Kentucky round out the top 10.

Kansas tops the list for heat-related losses, with $190.8 million in indemnities. It is followed by Nebraska ($154.4 million), Texas ($76.9 million), Illinois and Kentucky ($70.4 million). Total heat-related indemnities were $1 billion for the country. Heat-related losses affect crops that are sensitive to warming, but not necessarily to low water levels. One example is crop failure due to heat during the critical blooming period.

Irrigation-heavy states reported a total of $148.3 million for losses related to poor irrigation supply. They include Texas, which will receive $45.8 million, Oklahoma ($41.8 million), Colorado ($32.4 million), California ($10.9 million) and Nebraska ($5.9 million). Texas, Oklahoma, Colorado and Nebraska all rely on groundwater irrigation from the Ogallala Aquifer, which risks depletion through overpumping.

The indemnity costs line up with the map of the drought over the course of last year, which overwhelmed the center of the United States, and the Southeast and the Southwest. The costs are also tied to the value of the agricultural sector. California, a state that did not experience any exceptional drought last year, will receive $27.5 million in drought, heat and irrigation-related indemnities. This is because the state's farmers specialize in high-value crops like fruits, vegetables and tree nuts, said Scott Faber, vice president of government affairs for the Environmental Working Group.

"It busts the myths that the 'I' states are receiving everything," said Faber, referring to large agricultural states like Illinois, Indiana and Iowa. "Some of the biggest recipients are for fruit and vegetables payments."

Calif. drought could be costly

These figures don't show a complete picture of the costs of drought, said Faber. USDA's chief economist, Joseph Glauber, told the Senate Agriculture, Nutrition and Forestry Committee that indemnity costs for last year could be as high as $17 billion. Media reports last summer quoted estimates of up to $20 billion.

The federal crop insurance program is run by private insurance companies but paid for by USDA's budget. Premiums are subsidized in part by taxpayers, although producers pay a "significant" portion of the premium, according to the RMA, which rejects the claim that crop insurance is paid mostly with taxpayer dollars.

Earlier this month, Sen. Jeff Flake (R-Ariz.) and Rep. John Duncan (R-Tenn.) introduced legislation in the Senate and House that would scale back insurance premium subsidies in the federal crop insurance program (E&E Daily, March 6).

"As these droughts become more frequent, the liability facing the taxpayers is going to grow exponentially, and we bear most of the costs of indemnity when the crop fails," said Faber, adding, "A California drought could be much more costly to taxpayers than the terrible drought that we've seen in the Midwest this year."

For every dollar paid to insurance companies last year, $1.42 was paid out, according to the RMA. Two years before, a good year for crops, the ratio was 0.56.

Laurie Langstraat, vice president of public relations at National Crop Insurance Services, said the RMA figures are not yet final and won't be until the underwriting losses for the crop insurance companies and the federal government are determined.