The cost of farming marginal land?
Would you farm land that you knew wouldn't make a crop? How about if you know you'll still make money?
Farmers exploiting situations like these -- farming poor ground but still making money because of crop insurance payments -- are creating "double societal losses," says one farm policy expert.
"One of the problems that insurers have to guard against is called moral hazard, because if they don’t it could be costly to their bottom line," says longtime University of Tennessee ag economist and farm policy specialist Daryll Ray. "With the current program, there seem to be few-to-no controls on the introduction of crops like corn into fields and areas where the chances of crop failure are high and the chances of collecting indemnities that are larger than the farmer’s premium cost plus the cost of putting the crop into the ground are also high."
In previous crop insurance programs, there have been safeguards from the exploitation of marginal land and crop insurance payments, Ray says. That helped keep farmers from investing in those acres for the sake of "farming the government."
"Under earlier farm programs, the implementation was under the supervision of county committees made up of farmers who were knowledgeable about growing conditions in their county," he says. "Based on their knowledge they could identify marginal land."
In view of cases where these types of fields are sown into crop production, Ray says it's important to shore up the crop insurance system so there's less of a financial burden on taxpayers.
"From a public policy perspective, taxpayers should not be subsidizing policies that guarantee profits by allowing farmers to plant crops on marginal land that should remain in pasture," he says. "In this case there are double societal losses -- environmental and financial."