Credit, Crop Insurance and Sustainable Agriculture

The Sustainable Agriculture Learning Initiative is a project jointly funded by the USDA Council for Sustainable Development, the Sustainable Agriculture Research and Education program (SARE), the Risk Management Agency and the Farm Service Agency (FSA). The stated purpose of the project is to seek to lift barriers to greater adoption of sustainable agriculture farming practices by educating lenders, crop insurance representatives and producers.

One-hundred (100) surveys were mailed to each of the following groups:

• Lenders – Members of the agricultural section of the Nebraska Bankers Association.
• Crop Insurance Agents – Insurance agents specializing in crop insurance listed with the Nebraska Department of Insurance.
• Producers – Members of the Nebraska Sustainable Agriculture Society combined with those names on the Center for Rural Affairs database that had provided a CFRA interest code pertaining to sustainable agriculture and participants in the CFRA Land Link Program and recipients of CFRA’s former "Beginning Farmer Update" newsletter. This list was narrowed to include active producers only and to represent all areas of the state.

For purposes of reference, the following definition of sustainable agriculture was used in the surveys: "Sustainable agriculture has been described as having the goal of incorporating more ecologically-sound practices that preserve and renew the nation’s soil, water, plant and animal resources through the elimination or substantial reduction of dependence on energy, synthetic fertilizers and pesticides."

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Results

A. Knowledge and Awareness of Sustainable Agriculture
Each surveyed group was asked the identical question on knowledge and awareness of sustainable agriculture (as defined above).

* Numbers represent the percentage of respondents in each group in each response category. Numbers may not equal 100% due to rounding.

As one would expect, the depth of knowledge is greater among producers than the other groups. It is clear that education on sustainable agriculture is necessary among crop insurance agents – more than 60 percent of respondents indicated only awareness or less of sustainable agriculture.

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B. Availability of Credit and Crop Insurance to Sustainable Agriculture
Lenders and crop insurance agents were asked whether their products (loans, credits, and crop insurance policies) were provided to farmers and ranchers using sustainable agricultural practices. Among responding lenders, a strong majority of 68 percent said they do provide loans and credit to farmers and ranchers using sustainable agricultural practices. Among crop insurance agents, however, barely half – 52.5 percent – said crop insurance policies were provided to those using sustainable agricultural practices.

Among those producers responding, 82 percent purchased crop insurance while 70 percent obtained operating credit. The use of crop insurance among the producer sample does correspond to the apparent reluctance of crop insurance agents to provide policies to sustainable agriculture practioneers because 78 percent of responding producers use "conventional agricultural" practices in some degree. Producers may be defining themselves in terms of sustainable agriculture, while defining themselves as "conventional" to crop insurance agents to obtain crop insurance coverage.

Lenders and crop insurance agents were also asked, if applicable, why their products were not provided to those who practice sustainable agriculture. Among lenders, the reasons provided generally concerned a lack of requests for credit by those who define themselves as sustainable farmers or ranchers. While several responding lenders asserted that "sustainable" is not an issue in credit decisions, there is some perception of discrimination against sustainable agriculture that may account for producers not defining their practices or operation in certain ways.

Crop insurance agents provided more specific financial reasons for denying coverage. The vast majority of crop insurance agents answering this question, however, were similar to lenders – they are not asked for coverage by farmers defining themselves as "sustainable farmers."

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C. Actions Against Sustainable Agriculture: Non-Producers
Only one lender and two crop insurance agents responded that they had specifically ever requested a farm or ranch client not use sustainable agricultural practices. All three cases related to the belief that sustainable practices reduce productivity and income.

One lender and three crop insurance agents responded they were aware of farmers being denied crop insurance coverage because of the use of sustainable agricultural practices or systems. While express denial of crop insurance coverage may be rare, reduced indemnity payments are more common. Sixteen percent of crop insurance agents responded they were aware of "sustainable" farmers receiving less in crop insurance payments compared to "conventional" because of the practices used by "sustainable" farmers.

No lenders believed that crop insurance and agricultural credit discriminated against those farmers and ranchers who use sustainable agriculture practices. However, 20 percent of crop insurance agents believed that.

D. Actions Against Sustainable Agriculture: Producers
Among the producer respondents who have ever had crop insurance coverage, 10 percent have been denied coverage at one time because of their use of sustainable practices. Among producers who had ever had operating credit or loans, 8 percent had been denied credit or loans at one time because of their use of sustainable practices.

Eight percent of producers also responded that their banker had spoken against sustainable agricultural practices or asked that such practices not be used. About 9 percent of producer respondents reported that they had been prevented from using sustainable practices by their bank or crop insurance company.

While few lenders and crop insurance agents believed crop insurance and agricultural credit discriminated against sustainable agriculture, nearly 46 percent of responding producers believe such discrimination exists.

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Conclusions

• Differences in the amount of knowledge concerning sustainable agriculture possessed by the different groups may be to partially blame for other differences. While it is reasonable for those actually involved in farming to have greater awareness and depth of knowledge about sustainable agriculture and its practices than would bankers or insurance agents, it may be that a lack of knowledge and understanding of sustainable agriculture by bankers and insurance agents is influencing how they deal with farmers using sustainable practices.
   
• Conformity to conventional practices appears to be the path of least resistance. No matter their level of understanding or knowledge of sustainable agriculture and no matter their personal views, many producers seem to be conforming to "conventional" agriculture practices for reasons at least partially related to maintaining credit and crop insurance coverage. Several producer respondents volunteered that conformity to conventional practices is just easier when credit and crop insurance are concerned.
   
• Differing perceptions of the existence of bias against sustainable agriculture are a cause of concern. All three groups have wildly differing perceptions of the existence of bias against sustainable agriculture and those who employ its practices. Whenever there is such a wide divide in beliefs exists between groups of people, there is an obvious communications breakdown.
   
• Profitability is the foremost consideration, particularly for lenders. When making lending decisions concerning farmers and ranchers, lenders are most concerned with the profitability and cash-flow of the farming/ranching operation. Whatever perception there is about the non-profitability of sustainable agriculture can be rebutted with evidence of profitability and positive cash flow by the farmer or rancher using sustainable practices.

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Recommendations

• An on-going program of education on sustainable agriculture for lenders and crop insurance agents.
   
• An education effort should focus on the economics of sustainable agriculture (i.e., profitability, yields and like issues).
   
• Education opportunities could also focus on new crop insurance laws (particularly laws and regulations concerning sustainable and organic practices) and the Community Reinvestment Act (CRA). Local lending practices under the CRA could be developed in a way to provide enhanced lending and credit to small-scale farmers and ranchers, beginning farmers and ranchers and those employing practices that benefit the natural environment of the community.
   
• Introducing lenders and crop insurance agents to the 2002 Farm Bill conservation provisions potentially tailored to producers employing sustainable practices should also be a focus of educational efforts.
   
• Education should also target producers and focus on productivity, "how to" case studies and research, and how to persuade landlords, lenders and crop insurance of the viability of sustainable agriculture.
   
• A formal and on-going communications and outreach effort could address the widely different views concerning bias against sustainable agriculture. For example, a task force composed of producers, lenders and crop insurance agents could be formed under the facilitation of an organization such as the Center for Rural Affairs or the Nebraska Sustainable Agriculture Society to periodically meet and discuss issues related to credit, crop insurance and sustainable agriculture. A sharing of concerns, research, new law and regulations, and other items of interest would be among the benefits of such a task force. E-mail list servs, written and electronic updates and short newsletters are examples of dissemination tools.
   
• Resources outlining the economic, environmental and social benefits of sustainable agriculture and its practices should be more available. A packet of research, case studies and other basic information on sustainable agriculture and its practices should be prepared and disseminated widely to agricultural lenders and crop insurance agents throughout the state.

The Center's Issue Briefs are produced by Jon Bailey, jonb@cfra.org and Kim Preston, kimp@cfra.org from our Rural Research and Analysis Program. Contact either of them for more information.