Should soil organic matter be a factor in insurance premiums?

Farmers may one day see lower crop insurance premiums if they have high levels of organic matter in their soil.

A study by the Agriculture Financial Services Corporation found that farms with higher soil organic matter have better yields and lower crop insurance claims.

In the region between Edmonton and Red Deer, AFSC researchers divided fields according to the level of soil organic matter. The fields with above average levels produced an average 71.5 bushels of barley per acre last year, while the below average ones yielded just 59.5 bushels. It was a similar story with canola.

Those are significant findings, said Stuart Chutter, a product coordinator with the crop insurer.

“If we look at what we paid out in indemnities over the last 21 years – so from 2000 to 2021 – 50 per cent of the insurance payouts we make are due to drought conditions or water limitations,” he said. “So anything that reduces drought risk is very important to crop insurance.”

Payout numbers from the fields studied in 2021 back that up.

“We paid above-average soil organic matter fields $24 an acre, but below-average fields, we paid them more than double,” said Chutter.

However, he stressed there are no plans to link crop insurance premiums to organic matter levels and AFSC is talking about its research only to foster a discussion in the farm community.

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However, he also noted that USDA research indicates a one per cent increase in soil organic matter can increase soil water holding capacity by around 25,000 gallons per acre. That’s equivalent to one inch of rain, he said.

“It’s basically a margin of safety that keeps things going in (dry) periods,” said Chutter. “So instead of plants being stressed and slowing their growth during dry conditions, there’s a bank account of safety from extra water holding capacity.”

That increased capacity also means that during periods of excessive moisture, there will be less runoff and/or pooling.

“When it comes to excess moisture and unseeded acreage with crop insurance, if that moisture is being held in the soil as opposed to pooling in your low spots, that land can get seeded,” said Chutter. “It can be productive. It can generate profits for the farm and prevent unseeded acreage claims.”

Looking ahead

Chutter said the subject will be part of future analyses.

“That subject has created some hesitation or comments back from industry. Is there land that when priced individually is too risky? What are the social impacts of that? Is that desirable? Perhaps. Or perhaps not. That’s a great question. Are we reliant on that land for food security and production in the economy or should it be grassland, perennial cover, or something else?”

There are also technical questions to address, including how AFSC would determine organic matter levels for every field across the province that it insures.

“A lot of this hasn’t been solutioned,” said Chutter. “This is preliminary research to engage industry, to have those sorts of discussions.”

It’s a topic that should be discussed, said Jason Lenz, who farms near Bentley and is vice-chair of Alberta Wheat.

“Certainly, the science behind this is very proven,” he said. “Soil with higher organic matter holds moisture better. It makes better use of nutrients that are in the soil, and it is just overall better for crops and soil health in general.

“It’s very innovative for AFSC to be thinking this way.”

Innisfail area producer Wade McAllister also praised the insurer for examining the issue but noted that crop insurance and risk assessments are complex topics.

He pointed to his farm, saying it is blessed with high organic matter levels (seven to 11 per cent) but weather and location are also major factors.

“We never have a crop insurance claim unless it’s hail,” he said. “I don’t know if it has a lot to do with organic matter. It has a lot to do with weather and the region you live in, because anybody down south, they can be in a crop insurance claim three out of five years.”

McAllister said crop and hail insurance on his family’s farm is about $35 to $40 an acre, but is thankful it exists after hail wiped out most of its fields this year – the most damage in the 132 years of the farm’s existence.

“I am going to fill probably six out of the 30 bins that we have,” he said.

Another issue with using organic matter levels as part of the premium calculation is the time it takes to increase those levels. The McAllisters, for example, went to no-till more than two decades ago but stewardship efforts like that take a long time to boost organic matter levels.

“That’s a multi-year process to gain small percentage points in your soil organic matter,” said Lenz. “That means long-term planning and long-term sustainability of your farm if that’s your goal to build organic matter.”

On the other hand, the prospect of having lower premiums – a benefit that would recur every year – could be an additional incentive to use practices which increase organic matter levels and avoid those that reduce it.

But first, there needs to be further study before contemplating a premium reduction for fields with higher organic matter, said Chutter.

“From a purely risk-based approach, if the findings of this initial project are true and applicable across the province, then yes,” he said. “If there are increases to soil organic matter that reduced actual risk, internalizing that in the price would lead to a reduction in costs.”

In the meantime, he added, there are other ways to reduce risks to crop production, including more diverse rotations, reduced tillage, earlier seeding dates, and using drought-resistant and early maturing varieties.