How the SVB banking crisis created exposures for American farmers

And what's the link to crop insurance?

How the SVB banking crisis created exposures for American farmers

Insurance News

By Gia Snape

The collapse of Silicon Valley Bank this year increased risks for technology startups and companies across corporate America, particularly those with large portfolios of investment securities.

Hundreds of miles away from California, farmers in rural America were also hit hard as their community banks were shaken by the banking crisis that ensued.

That’s according to Jim Korin (pictured), president of NAU Country Insurance Company, a federal crop insurance provider under QBE Insurance.

Korin spoke about the banking crisis and its impact on farmers’ financing to US senators at a recent subcommittee hearing, advocating for improvements to the federal crop insurance program in response to farmers’ increasing exposures.

“Crop insurance is a crucial risk management tool for farmers, and it has been successful due to its public-private partnership and support from Congress,” he said.

“My hope is that my testimony provides support for continuing the program and expanding the assistance that government can provide to the coverages in the program. If that happens, our farmers are going to have a better safety net.”

How were farmers impacted by the SVB banking crisis?

One way the banking crisis affected farmers was by way of agricultural start-ups. According to Korin, SVB provided financing for agricultural tech firms, and following the bank’s collapse, some of those start-ups couldn’t move forward.

“If [a bank] is financing somebody that might do business in the commodity space, and that bank goes down, they tie up a lot of money that these companies use to make their business work,” Korin told Insurance Business.

After SVB crashed, spooked investors pulled money out of several banks en masse, causing more banks to fail. The crisis that followed sent shockwaves to small community banks in rural areas, impacting farmers that rely on those institutions for financing.

“When the public sees these bank failures happening, they tend to take their money out of the smaller community banks and move it to the bigger banks, such as the JP Morgans,” Korin said.

“Those community banks are very, very important to rural America. They provide funding for operating loans for equipment, loans for land purchase, and so on. When these community banks lose capital because people are fleeing the banking system, that creates real chaos.”

Boosting the federal crop insurance program

Federal crop insurance covers around 90% of production agriculture in the US, according to NAU Country. This includes some 135 crops and nearly 400 million acres of agricultural land. The remaining coverage is provided by private companies.

The hearing for the subcommittee on commodities, risk management, and trade, under the Senate committee on agriculture, nutrition, and forestry, was in aid of a new farm legislation this year. In his testimony, Korin emphasized the importance of crop insurance and financing for American farmers.

“The hearing [centred on] what we could do to make it better for the American farmer. There was a lot of talk about community financing and what farmers need to make ends meet,” Korin said.

In addition to protecting farmers against financial losses, Korin testified that crop insurance plays a vital role in maintaining price stability in the agricultural sector, promoting food security, strengthening rural economies, and reducing reliance on government aid.

And while crop insurance is a key lifeline for farmers, farmers are the lifeblood of many rural communities and other businesses that operate within them, the NAU Country president set out.

“Without crop insurance, many rural communities wouldn't exist the way they do. In my area, there's a co-op, restaurants, a hardware store… but without farmers in those towns, none of those stores would exist.

“Crop insurance makes sure the farmer can farm. They can go to the bank and ask for an operating loan of say, $1 million, and if their crop fails for any reason, they have crop insurance as a backstop.”

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