THE GOOD, THE BAD, AND THE UGLY — Farm Invoice Information, April 2024 — The Dust

FINANCIAL INCENTIVES AND DISINCENTIVES IN CROP INSURANCE:

Challenges for Small-Scale, Diversified Growers

COMPENSATION STRUCTURE

Crop insurers are usually compensated via commissions or percentages of the general crop insurance coverage contract. This implies they earn a portion of the premiums paid by the farmer for the insurance coverage protection.

INCENTIVE STRUCTURE

The motivation for insurers lies in maximizing their commissions, which regularly correlates with the dimensions and ease of contracts. Insuring a bigger farm with fewer crop varieties is extra financially interesting as a result of:

·       The insurer avoids the extra paperwork and workload related to every extra crop, which minimizes complexity and administrative burden.

·       Smaller, diversified farms with a number of crops on fewer acres (e.g. 30 crops rising on 5 aces) require extra paperwork and energy for comparatively smaller fee returns.

Desire for *Giant-Scale Farms

Given these elements, insurers are extra prone to want working with bigger commodity farmers who:

·       Have bigger acreage however fewer crop varieties (e.g. 300-acre commodity farmers who solely develop three or 4 crops a yr).

·       Supply bigger, easier contracts that generate greater commissions with much less administrative overhead.

Drawback for Small-Scale, Diversified Growers

In distinction, insurers are much less prone to want working with small-scale growers with diversified crops on restricted acreage as a result of:

·       Greater paperwork and administrative burden for every crop.

·       Smaller total contracts with decrease insurer commissions as a result of their scale and diversification.

*Acknowledgement: Please observe, we’re not disparaging massive farms that develop a small variety of crops. We’re extremely proud to be part of Georgia’s wealthy agricultural heritage and group. We’re merely trying to find — and advocating for — insurance coverage options that equitably safeguard the pursuits of natural farms cultivating many, various crop varieties.