Climate change raises crop-insurance cost

Hot, dry conditions caused by climate change have added billions of dollars to the cost of the federal crop insurance program.

Long-term warming contributed $27 billion to the losses covered by the U.S. crop insurance program from 1991 to 2017, or more than 19% of the $140 billion total, according to researchers at Stanford University. Increased temperatures contributed about half of the $18.6 billion in losses during 2012 alone, when record heat and severe drought engulfed much of the Corn Belt.

"We know global warming is causing extreme thresholds to be crossed more frequently, and the new research shows it's costing billions of dollars in the agricultural sector alone," Noah Diffenbaugh, lead author of the study and a professor in Stanford's School of Earth, Energy & Environmental Sciences, said in a university news release.

The U.S. crop insurance program - created in the wake of the 1930s Dust Bowl and expanded in 1980 - now covers more than 80% of American cropland. It costs the government an average of about $9 billion per year. The program enables farmers to collect insurance when crop yields or market prices are less than expected.

"In a bad weather year farmers can have a terrible year in terms of yields, but actually do pretty well in terms of income because of the crop insurance program," said Marshall Burke, a co-author of the stud, an associate professor of Earth system science and a senior fellow at the Stanford Institute for Economic Policy Research. "That's what the program is supposed to do. So in some sense it's working - but it's very expensive."

Subsidies cover more than half the cost of buying crop insurance and support private companies that sell and service the policies. As hotter, drier conditions become more common, insurance payouts to farmers - known as indemnities - are likely to increase.

"Because the payouts are so heavily subsidized by the U.S. taxpayer, it's a public-policy question about how much those should be sustained," Burke said.

The researchers designed their analysis to isolate the influence of climate extremes from the many other factors that can contribute to larger payouts in the crop insurance program. Among those factors are inflation, changes in the mix and value of crops planted, or the rate of insurance uptake by farmers.

"Farmers might be buying more insurance over time, but we use a method that allows us to remove those changes when estimating the relationship between temperature and the cost of indemnities," said Frances Davenport, a study co-author and doctoral student in Earth system science at Stanford.

The authors compared indemnities in each U.S. county to itself in different weather conditions. County by county and year by year, they examined U.S. Department of Agriculture records of losses claimed by farmers and paid by federal crop insurance. They also calculated the average temperature and precipitation observed in each county during the April to October growing season.

After accounting for any differences in weather and indemnities shared among multiple counties, they calculated whether the payouts in each county were greater or lesser in a year in which temperature or rainfall departed from the county's average.

"Looking at year-to-year variations, we found that the payouts are greater in really warm years or really dry years," Davenport said. "One of the things we see consistently with climate change is that it's making the most extreme events worse. The hottest years, such as 2012, are where the additional costs from climate change are greatest."

Some regional trends emerged from the county-level data. Midwestern states, which contain a large fraction of heavily farmed counties, most closely resemble the nationwide trend. Counties in California's Central Valley saw the steepest growth in crop indemnities during the study period, increasing on average by more than $2 million per year.

The new study is the latest in a growing field of climate science known as "extreme event attribution," which combines statistical analyses of climate observations with computer models to quantify how global warming alters the likelihood and severity of individual weather events. It's a field of study that may provide answers to some of the questions of causality being raised in climate-related lawsuits. But few studies to date have extended the analysis to quantify the financial impact of individual extreme events.