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Use Crop Insurance? Thank Art Barnaby
Crop insurance is popular, partly because private companies sell it. It works because farmers can buy revenue insurance with a harvest price tied closely to a crop’s real value. We might not have this valuable resource without the work of Kansas State University (KSU) ag economist Art Barnaby. He helped create the first version of revenue insurance, Market Value Protection, offered in 1991. Barnaby retired from KSU on January 31.
SF: What drew you to agricultural economics?
AB: For my master’s thesis in animal nutrition, I was working in a chemistry lab measuring metal retention in lab rats. If you’ve ever worked with lab rats, that’s a good reason to switch to economics.
SF: Why did you focus your career on crop insurance?
AB: It was dumb luck. In 1980, Congress passed a law to scale up crop insurance from a small government agency to the private sector. Someone in the USDA said, “We need to get all these Extension guys off their butts to explain this to farmers.” I was the most junior faculty member at Kansas State, so they sent me to a meeting to learn about it. When I talked to farmers, I found the reason they weren’t buying crop insurance was that it wasn’t providing the protection they needed, particularly for the better farmers. It was based on a county’s yield. So one of the first major changes was an individual yield guarantee.
SF: How did you develop revenue insurance?
AB: In 1989, we had a major drought loss in Kansas hard red winter wheat. We had counties that had near zero yields. Because of the widespread disaster, the price went up. Kansas farmers told the Secretary of Agriculture that crop insurance didn’t cover them when there was a disaster. If they really had a true yield guarantee, it would insure the replacement value of the crop. Congress put together a commission on how to fix crop insurance. I submitted a memo explaining where the hole was in crop insurance and how to fix it. It didn’t go anywhere. Then an American Agrisurance executive read it. I worked with them. They sold it as Market Value Protection in 1991. Effectively, it was an endorsement that guaranteed the harvest price. Today, revenue insurance is what gives you the ability to hedge a crop.
SF: What challenges lie ahead for crop insurance?
AB: Payment limits or income limits, for one. If you eliminate big farms from the program, you hurt its actuarial soundness. There’s also a populist argument that we shouldn’t have tax dollars go to foreign-owned crop insurers. Because some American insurance companies are backed up by foreign reinsurers, it’s already going there anyway. Finally, because crop insurance prices are tied to futures, lack of convergence of futures and cash prices at settlement – which we’ve had in Kansas wheat – remains a potential problem.
SF: How do you answer environmentalists who say crop insurance encourages production on marginal land?
AB: I farm 350 acres of cropland near Enid, Oklahoma, where corn averages 67 bushels an acre. It’s higher than wheat, which averages 40. With feedlots nearby, corn has zero basis; wheat doesn’t. I can sell corn in August as old crop. So to say crop insurance drives that decision is overly simplistic. It’s all due to market conditions.
SF: Any plans in retirement?
AB: I will continue to accept funded seminar invitations. My wife and I have moved to a house near the farm where I grew up.