Safety net makes Iowa farmers’ success possible

By Alan Rosendahl

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What could possibly be scarier than being a farmer who stakes his yearly income on getting the divine cooperation of Mother Nature? Being the banker who makes the loan to the farmer every year to take that risk.

In a year when both the Mississippi and Missouri rivers have left their banks while the Southern Plains bake in drought, it's not hard to understand the risks associated with farming.

Recognizing the inherent risk in agriculture and the need for the country to have a stable food supply, Congress years ago assembled a set of policies known as “farm safety net programs” to ensure that farmers weren't knocked out of business because of bad weather or wild market fluctuations. The most important of those policies - and the one that best serves agriculture - is crop insurance.

As a banker and a farmer, I can tell you that federal crop insurance is the only thing that makes it possible for us to loan money to small farmers in Iowa. Banks, like other businesses, need to turn a profit to stay in business. But loaning money to small and beginning farmers can be very risky, because they often have less net worth, and tighter cash flows. Coupled with the fact that small banks are inherently risk-averse, particularly after the banking implosion of 2008, and you can see the dilemma.

But federal crop insurance bridges the risk problem because it serves as the collateral that the farmer needs to secure the loan, lowering or eliminating the risk to the bank altogether and ensuring the loan is made. Crop insurance establishes the floor for the farmer under which he can fall no further, ensuring that although he is small, he will be here to farm yet another year.

During my long career in the banking business, I have noticed that the most profitable and successful farmers carry the most crop insurance. Successful farmers must be good businessmen, and good businessmen manage their risks. And it's precisely their ability to manage risks and ensure continuity of production that explains the abundance and affordability of the U.S. food supply.

But it doesn't stop there. A side benefit of crop insurance is that is also serves as a much-needed capital lifeline for small towns and rural America. This happens because crop insurance policies establish a cash flow from the farmer to the bank, the first of many times those dollars change hands. The bank takes the money it brings in from farmers and invests it in the local community or makes the funds available as loans to others seeking growth or investment capital. These dollars' rippling effects benefit the vast majority of the residents of small towns.

The beauty of crop insurance from the taxpayer's point of view is that it is a public-private partnership where the public helps fund a portion of the premiums, yet the bulk of the risk is shouldered by the private sector, not taxpayers.

Unfortunately, farm safety net programs, like other parts of the federal budget, are on the chopping block. That's why it's critical that Iowa's congressional delegation ensures that agriculture is not forced to shoulder a disproportionate part of the burden. Despite its success, crop insurance has already sustained over $12 billion in cuts over the last three years.

Any more cuts to the crop insurance delivery infrastructure could undermine the viability of the program, and its benefits to Iowa and all of rural America.

Alan Rosendahl is a senior vice president at Iowa State Bank and a farmer who resides in Kesley, in Butler County. Comments: xxxxxxxxxxxxxxxxxxx