Harvesting Crops, or Harvesting Insurance? How the USDA’s Crop Insurance Policy is Preventing a Regenerative Transition

As we emerge from yet another winter of record-breaking weather extremes, the global focus on food systems is justifiably intensifying. Regenerative agriculture continues to gain momentum as a solution to our climate woes – and many other issues, too, like social justice, improving farmer livelihoods, and revitalizing rural economies. As a producer, you may be enticed by its promises of reduced input costs, greater climate resilience, or even premium pricing. You may have even experimented with some regenerative practices like cover cropping and crop rotation. 

While we are still early in the hype cycle around regenerative agriculture, research and experience indicates that many of these benefits are indeed real. There is, however, a glaring absence in the world of regenerative agriculture: Producers who make the switch are often disqualified from the nearly $10 billion in indemnity payments available through the federal crop insurance program, leaving them to shoulder the catastrophic economic risks of growing food and fiber alone.

Getting Tangled Up in a Safety Net

Since 1938, with the passing of the Federal Crop Insurance Act, American farmers have benefited from the ability to offload some of their financial risk to government-backed insurance instruments, providing farmers and ranchers with a critical safety net. On top of that, taxpayers shoulder 60% of the premium payment in the Federal Crop Insurance Program (FCIP)[1], making the program an obvious choice for producers. Today, nearly three-quarters of eligible cropland is covered by some form of crop insurance policy.

By many measures, this program has been a success for farmers, often resulting in better farm financial health and facilitating longer term investments. The program, however, has devastating side-effects for ecology and human health due to the behaviors that it incentivizes. Farmers are no longer deeply financially tied to the long term health of their operations, because optimizing for insurance payouts is easier, safer, and more profitable than cultivating a robust agricultural system that would thrive in unfavorable conditions. For example, a farmer in Iowa looking to add diversity to their corn fields by planting an additional crop or integrating cover cropping practices could actually lose coverage and reduce profitability by doing so. Moreover, since crop insurance policies are single year products, farmers have little incentive to consider practices that prioritize long term soil health. Planting insurable crops is often more profitable – even if these crops fail.

While farmers’ work has remained as challenging as ever, the subtle behavioral shifts that resulted from aligning with USDA coverage policies have created a new calculus: many American Farmers are harvesting insurance payouts rather than building robust ecological systems that can withstand severe weather and supply chain disruptions.

What started as a well-intentioned safety net to shore up America’s food supply has morphed into a trap where basic consideration for soil health, drought resistance, input minimization, and water management is, at best, disincentivized and, at worst, actively punished. This taxpayer-funded safety net keeps farmers in a bind: if they play by the rules of the Federal Crop Insurance Program, they can offload risks to insurance instruments, but if they want to adopt regenerative practices that have been proven to reduce water consumption, improve flood and drought tolerance, reduce input costs, capture carbon, and increase biodiversity, they are on their own.

As our environment changes, a shift in practices is necessary. The opportunity and risk for both producers and insurers are too big to ignore.

Regenerative Agriculture Insurance: The Key to Scaling a Transition

The restrictive nature of the Federal Crop Insurance Program and its failure to lay the infrastructure for broader coverage of diverse farming practices has created a massive opportunity. By failing to collect data and lay the infrastructure for changing agricultural and environmental realities, the USDA has tightly coupled itself with agricultural practices that are not aligned with the fast approaching future characterized by biodiversity crises, frequency of drought and flood cycles, and broad adoption of regenerative practices. As climate change intensifies, economic conditions squeeze agricultural operations harder, and inflation weakens consumers’ ability to vote with their dollars, the Federal Crop Insurance Program is facing a future in which it will need to make increasingly bigger payouts to keep farms and ranches afloat. If actuarial science has its say, at some point our conventional way of growing and producing food will become inherently uninsurable. At what point will the federal government stop asking consumers to keep paying for a food system that is causing ecological and human health damage, and can we afford to wait to find out?

While the USDA stands to lose from this short sightedness and is arguably doing a disservice to producers by not incentivizing resilient farming and ranching practices through insurance programs, others may benefit. The gap in coverage created by the USDA is a massive opportunity for enterprising and forward thinking players in the insurance market. Early adopters who design, market, and scale regenerative agriculture insurance products have the opportunity to lead an emerging market. From remote sensing companies specializing in regenerative agriculture (like Hummingbird Technologies) to in-situ data collection technologies, there is an entire ecosystem waiting to be born in the wide gap between the USDA and regenerative agriculture. 

Compounding the need for a solution to agriculture’s insurance habit is the reality that many producers will struggle to access capital without insurance. This means that insurance is not just a “nice-to-have” component of an operation, it is a necessary cornerstone of the transition to regeneration. If we are asking farmers and ranchers to undertake the heavy burden of adopting new practices and coping with the ups and downs that often happen during the transition period as they wean their operations off chemical inputs and conventional monocultures, we have an obligation as a community to ensure that we are not also setting them up to fail. A new insurance product that incentivizes soil health, diversification, and a fairer apportionment of risk is the first thread in a new safety net.

Regeneration over Extraction

Regenerative Agriculture Crop Insurance would work similarly to the Federal Program; however, it would support a much broader set of practices. Furthermore, it would reduce the burden on producers by relying on state of the art technology to collect and monitor farm data and producer practices. Since this program would be administered by the private sector, requirements and policies could massively vary by region, practice, and even according to a buyer’s identity.

Like any insurance product, Regen Ag Insurance will require data to calibrate risk –  lots of it. Early movers in this space can begin laying the infrastructure by using cutting edge remote sensing and on-the-ground data collection techniques to begin building the first generation of models. CPG Corporates looking to improve their supply chains can dangle a carrot in front of their suppliers – participating in insurance costs as a method to incentivize the greening of their supply chains. Moreover, the broad deployment of environmental monitoring throughout supply chains could, in tandem with supporting insurance, be utilized to generate Carbon and Biodiversity credits for farmers and corporations.

This transition will require significant data infrastructure, integrating farm operation data, geospatial data, and ground-truth data to tell a clear story about the risks and benefits of regenerative practices,  all of which should remain owned by farmers. While the development of this data infrastructure is no small task, early successes of platforms like Arbol for climate risk and dClimate for weather data point to a potential path forward. Forward thinking insurers, when armed with data, can build creative and impactful products – from parametric insurance for Coral Reefs, to Nitrogen Insurance for Sugar Canes.

The Nature Tech Collective and its network of companies is uniquely positioned to advance the discussion around regenerative agriculture insurance and the data needed to support the growth of this industry. To be notified of Market Research and to learn more about Regenerative Agriculture Insurance visit NTC and be sure to check out the work of Food System 6.

[1] For a primer on the Federal Crop Insurance Program, see https://crsreports.congress.gov/product/pdf/R/R46686

Contributed by Oren Rittenberg (Nature Tech Collective) and Lauren Manning (Food System 6)