Business insurance and politics

No matter what your view on the reality of climate change or global warming, you cannot deny the present crisis in the farming industry which is facing one of the worst droughts for decades. This is putting sudden pressure on Washington and has implications for all of us. The Common Crop Insurance Policy has been an essential part of the safety net for farmers. Despite the GOP’s strongly asserted resistance to “Big Government” the subsidies and federal insurance program is seen as essential to maintain voter support in the farming states.

In fact, the business insurance policy has always been caught in administrative problems and unless farmers claim within 72 hours of becoming aware of damage to the crop, the claim will be denied. Even if the claim is lodged within time, the farmer still has to wait until the harvest price is announced. Usually, the adjuster will agree the amount of the loss and pay within 45 days.

Unfortunately, the definition of common crops only includes the volume crops like corn, soybean, and so on. Speciality crops like cherry are excluded. Worse, crops are not livestock. So those who keep pigs, cattle and other livestock for the market have no federal safety net unless legislation allocates funds for this purpose. With the current gridlock in Washington, passing any legislation is a challenge. The current farm bill is making no progress because, traditionally, it ties farm and food stamp funding together. The GOP wants savings in food stamps. The Democrats want cuts to the subsidies.

It may not look too serious until you realize the effect on food prices. In the short term, livestock prices will fall as ranchers sell off their herds but then, as demand exceeds supply, the price will rise way above today’s market prices. The prices for all the foods that currently rely on the grains and corn will simply rise. Even if the gridlock in Washington suddenly disappears, we are talking about so big a payment out of the budget, it will require a major adjustment to avoid adding to the deficit. It’s unusual to find a business sector in which both the large and small business insurances implications have such a profound impact of the public purse, but the farming industry is entirely funded out of taxpayer’s money.

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