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TheStreet Open House

Climate Change Finds Resonance in Federal Farm Policies

Stocks in this article: WFC ENH MON

NEW YORK (TheStreet) -- With programs and policies informed from the growing threats of climate change, implementation of the 2014 Farm Bill is taking steps toward a risk mitigation model for farmers partly through a growing emphasis on crop insurance and the termination of more direct subsidies.

While significant, those efforts remain small compared to the growing threat to farmers, crops and agricultural suppliers and customers from more frequent and more severe climate disasters.

Scott Marlow, executive director of the Rural Advancement Foundation International - USA, noted that although climate change is not mentioned directly in the new legislation, its implications are clearly felt.

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"We see significant climate change impact and choices in some of the farm bill programs," Marlow said. "There seem to be some programs that address global climate change issues directly." Other programs, he added, most notably those surrounding crop insurance, represent significant policy changes as an indirect response to threats posed by climate change.

Those changes will prove a boon to crop insurance specialists like Rural Community Insurance Corp., a unit of Wells Fargo (WFC - Get Report), and ARMTech, a subsidiary of Endurance (ENH - Get Report). Both companies offer a variety of crop insurance products across most of the U.S. Farmers already lean heavily on crop insurance to get them through natural disasters like the drought currently wreaking havoc in California. The greater variety in policies and insurance cost subsidies offered under the 2014 Farm Bill will serve to rachet up the demand for coverage.

In addition, revenue channels for large companies like Monsanto (MON) and Caterpillar (CAT) will also be strengthened somewhat, as farmers will be in a better position to pay off suppliers without losing their businesses.

While the federal budget allocates money to specific projects for a 12-month period, the Farm Bill establishes multi-year federal spending procedures regarding agriculture and food supply. The previous bill was passed in 2008. It officially expired in 2012 but was extended by Congress for an additional year. After being debated for three years in both chambers, the current bill was signed into law Feb. 7.

Under the old bills, the safety net for crop losses consisted of direct payments based on crops the farmer had a history of growing -- and would be paid regardless of whether the crop was currently being grown -- and countercyclical payments that would be triggered if prices fell below a pre-set target. Neither one required farmers to pay anything.

The current system instructs the U.S. Department of Agriculture to set up subsidized crop insurance programs, offered to farmers through private companies and backed by the federal government. Premiums are heavily subsidized at varying rates, but most coverage plans require the farmers to pay something toward the policy.

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