Credit, Crop Insurance and Sustainable Agriculture in Iowa
“This analysis reveals real disparities between how conventional operations and sustainable farms and ranches are treated by lenders and insurance companies,” said Traci Bruckner, Assistant Policy Director at the Center for Rural Affairs and an author of the report. “There are several things we can do to change that right away,” Bruckner added.
“First and foremost, to level the playing field, the 2012 Farm Bill should include direct language that would remove a 5 percent surcharge on insurance premiums for organic producers and provide insurance claim payments equal to the market premium for organic products,” continued Bruckner.
Bruckner explained how current law puts organic producers at a significant disadvantage by charging them a 5 percent surcharge and only providing conventional price coverage in times of crop failure.
According to the report, profitability is the main consideration for most of the business decisions examined here, particularly for lenders. In lending decisions concerning farmers and ranchers, lenders are most concerned with the profitability and cash-flow of the farming or ranching operation. While there appears to be some perception that sustainable agricultural practices are less profitable than conventional practices, this presumption may be changed if evidence of profitability and positive cash flow can be presented by the farmer or rancher using sustainable practices.
The report also points out that while virtually all bankers and insurance agents saw no issues of bias against sustainable agriculture, some producers hid the truth of what they were really doing on the farm or ranch. Perceptions or fears that an open discussion of their practices and systems will lead to a loss of insurance coverage or operating capital may be making for a less-than-honest relationship between producers and lenders and/or insurance agents. This appears to be at least partially due to different planes of knowledge and understanding among the parties.
“Information and education is the key – education for lenders on the economics
and relative profitability of sustainable practices and the markets those systems can tap, and information for producers to enable them to present evidence of profitability to lenders,” explained Bruckner.
Sustainable agriculture has been described as having the goal of incorporating more ecologically-sound practices that preserve and renew the nation’s soil, water, plant and animal resources through the elimination or substantial reduction of dependence on energy, synthetic fertilizers and pesticides.
“Helping lenders and crop insurance providers understand that definition as well as the potential for such practices to reduce risk and increase profitability is crucial to ensuring that lending and insurance-based risk management tools are as valuable and available to family farms and ranches that practice sustainable agriculture as they are to those who practice more input intensive agriculture,” concluded Bruckner.
Based upon survey responses, while there is some awareness and knowledge of sustainable agriculture, it could be much improved. As one would expect, the depth of knowledge is greater among producers than the other groups. It is clear that more education on sustainable agriculture is necessary among crop insurance agents and lenders. More than one-third of the respondents indicated only awareness of or less of what sustainable agriculture is.