Rising temperatures intensify drought and increase costs for the heavily subsidized crop insurance program.
Source: Texas Tribute | June 6 | by Dyland Baddour, Inside Climate New, and Alejandra Martinez, The Texas Tribune
The financial costs of drought in Texas have risen rapidly over recent decades, according to a new analysis of federal crop insurance data.
Analyzed data from the U.S. Department of Agriculture and showed that drought accounts for more crop insurance payouts than any other weather phenomenon and that Texas draws more crop insurance payouts than any other state.
Payouts due to drought in Texas rose from an average $251 million per year in the 2000s to $516 million per year in the 2010s and $1.1 billion per year in the first four years of the 2020s, the data showed, rising at more than twice the rate of inflation.
Those numbers represent farmers’ lost harvests as well as the publicly-funded premium subsidies that keep them in business through disasters. As temperatures rise, so will costs.
“Drought and heat are expected to get worse in Texas,” said Anne Schechinger, author of the analysis. “Climate change is going to increase costs for both taxpayers and farmers.”
Drivers of the growth in payouts include inflation, expanding insurance coverage and immensely damaging droughts in 2011 and 2022. The federal crop insurance program, which provides highly subsidized coverage to American farmers, is one of several insurance sectors facing financial headwinds from increased exposure to increasingly severe weather, driven in part by carbon emissions from fossil fuels.
As costs keep climbing, Schechinger said, the crop insurance program requires reform that encourages adaptation to long-term changes in temperature and rainfall. In 2022, the program’s most expensive year on record, it subsidized 62% of policyholder premiums at a cost of $12 billion, according to a review by the U.S. Government Accountability Office.
“You don’t want crop insurance to insulate farmers from market signals,” said Joseph Glauber, a former chair of the federal crop insurance program and former chief economist of the U.S. Department of Agriculture. “You don’t want to encourage risky behavior. You don’t want to encourage growing crops on marginal land by virtue of the fact that you can insure it.”
In the last 30 years, crop insurance grew from a minor program to a massive safety net for American farmers and ranchers, Glauber said. That helps explain its rapidly rising costs, he said, driven by surging commodity prices during the Covid-19 pandemic (because crop insurance pays farmers market rates).
The program’s costs spike during years of drought, both in Texas and the nation. Drought can affect more farmers simultaneously than almost any other weather phenomenon.
“The problem with crop insurance is the same problem that we’re going to be facing with all the hazards that are associated with climate change,” said Bruce Babcock, an agricultural economist at the University of California, Riverside, who designed part of the modern crop insurance program. “There’s going to be a reckoning. We’re facing it now with the stresses that have been put on the insurance industry.”
Rising costs associated with extreme weather have posed challenges to other insurance sectors, too, said Mark Friedlander, a spokesperson for the Insurance Information Institute. The federal flood insurance program and home insurance industry have been particularly affected.
Originally published in the Texas Tribune, please click here to read more.