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Costly crop insurance?

DANIEL LOOKER 08/01/2012 @ 2:51pm Business Editor

Crop insurance has solid support from the leaders of the House and Senate Agriculture Committees. They opposed Obama administration budget cuts for 2013 that would shave crop insurance premium subsidies for farmers by two percentage points.

“Don't kill the program by taking away the incentives to participate,” House Agriculture Committee Chairman Frank Lucas (R-Ok) said at a meeting of North American Agricultural Journalists earlier this year.

Yet, the version of a 2012 Farm Bill passed by the Senate in June links eligibility for insurance coverage to meeting conservation rules, and it reduces premium subsidies for farms with adjusted gross income above $750,000.

Neither change is law yet. Both were opposed in the Senate by its Agriculture Committee Chairwoman Debbie Stabenow (D-MI) and ranking Republican Pat Roberts (R-KS). And in the House, Lucas and his committee's ranking Democrat, Collin Peterson, also have been skittish about tinkering with the one USDA program – crop insurance – that most farmers and ag groups want protected.

But because both the Obama administration and House Budget Committee Chairman Paul Ryan (R-WI) have proposed bigger cuts to crop insurance spending, it's worth a look at what the Senate did and didn't do.

The close vote of 52-47 in favor of a conservation compliance amendment offered by Senator Saxby Chambliss (R-GA) was followed by a 66-33 vote in favor of the premium subsidy cut for large farms that was backed by Senators Tom Coburn (R-Ok) and Dick Durbin (D-IL), who is the assistant majority leader for the Democrats in the Senate.

That reduction in subsidies would affect only 1,500 farmers out of 1.5 million, Durbin said. For those large farms, the USDA premium subsidy would drop from an average of 62% to 47%.

Coburn said his amendment was not as severe as an option studied by the Government Accountability Office (GAO) to cap insurance premium subsidies for all farmers at $40,000.

The GAO found that if the same limit of $40,000 on direct payments was applied to federal subsidies for farmers' crop insurance premiums, it would have saved the federal government $1 billion in 2011. Last year, federal crop insurance was the most expensive program for farmers, costing the federal government nearly $9 billion. Of that amount, about $7.4 billion went to farmer premium subsidies. The rest helped cover insurer costs.

Currently, USDA picks up between 38% and 80% of your crop insurance premium. The average subsidy is 62%. If premium subsidies were limited to $40,000, it would have affected 3.9% of all farmers who participate in crop insurance.

That may not sound like much. It's about 4% of some 875,000 farmers buying crop insurance last year. The GAO did say that the small percentage of farmers who would have been hit by a $40,000 premium cap last year “accounted for about one third of all premium subsidies and were primarily associated with large farms.”

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