Global Warming Poised to Hit Colorado Farmers in the Pocketbook

The list of possible hazards from global climate change is long, but there is one that appears to be poised to hit Colorado ranchers and farmers right in the pocketbook — crop insurance costs.

A U.S. General Accounting Office study released last week found:

“Rising temperatures are expected to increase the frequency and severity of damaging weather-related events, such as flooding or drought, although the timing and magnitude are as yet undetermined.”

The risk to Colorado comes mostly under the category of drought. Climate models predict that the climate of the U.S. southwest below the 40th parallel of longitude, which includes much of Colorado, will get drier.

The GAO report found:

“Major private and federal insurers are both exposed to the effects of climate change over coming decades, but are responding differently. Many large private insurers are incorporating climate change into their annual risk management practices, and some are addressing it strategically by assessing its potential long-term industry-wide impacts.

“The two major federal insurance programs, however, have done little to develop comparable information. GAO acknowledges that the federal insurance programs are not profit-oriented, like private insurers. Nonetheless, a strategic analysis of the potential implications of climate change for the major federal insurance programs would help the Congress manage an emerging high-risk area with significant implications for the nation’s growing fiscal imbalance.”

Losses by farmers and ranchers to drought conditions is already a big issue, even without factoring in climate change. The federal agency that insures farmers against these losses is the Federal Crop Insurance Corporation. Between 1980 and 2005, the FCIC paid $43.6 billion in weather related claims. Drought losses were the largest single problem, amounting to $18.6 billion, or 40 percent of all crop losses.

In  Colorado since 1992, the FCIC has paid out $853.3 million. More than 70 percent of that total has been paid in just the last five years, 2002-2006 inclusive. Most of the acreage insured is for corn and wheat.

Officials at the U.S. Department of Agriculture’s Risk Management Agency said that drought has been the chief problem in Colorado since 2002. In 2006, 76 percent of insured crop losses were drought-related.

Continuation of this trend will almost certainly result in higher crop insurance rates for Colorado farmers, USDA officials concede.

In addition to crop losses, ranchers have been hit by drought. The Colorado Department of Agriculture distributed about $1.3 million in drought assistance payments to livestock producers in 24 eastern counties.

According to the 2001-2002 annual report of the Colorado Department of Agriculture (the most recent one available):

“This year’s drought had severe impacts on agriculture; it is thought to be the worst drought in this region since the 15th Century.”

There probably wasn’t any American crop insurance in 1492, but federally insured 2002 losses were worst of any year in Colorado, about $141.9 million.

Federal insurance programs are not operated for profit. The GAO found that FCIC has not done any strategic thinking about the likelihood of increased crop losses from severe drought under a climate warming regime.

So it’s impossible to say what the impact on insurance premiums and losses for Colorado farmers and ranchers might be. But warning signs are there. The FCIC tries to reach a long-term loss rate of no greater than 1.075. That is, it tries to pay out only about one percent more than it takes in.

In Colorado, federal crop insurance has paid out 29 percent more than it has taken in since 1992. And if you look at only the last five years, which have been the worst, crop insurance has paid out 154 percent of what it has brought in in premium. In 2002, the figure was 266 percent.

Per-acre insurance premiums paid by farmers to federal programs have already more than doubled since 2000, but even that hasn’t kept pace with the risk.