Can you afford costlier crop insurance?
In India, cows are sacred. In the Corn Belt and much of the rest of agricultural America, crop insurance seems to be revered. At least that’s the impression you’d get from attending recent farm bill hearings held by the House Agriculture Committee. Farmer after farmer testifying will put crop insurance at the top of his or her list of untouchable programs.
The chairman of the committee, Representative Frank Lucas (R-OK) recently told North American Agricultural Journalists in Washington that the crop insurance industry has already given much to reducing the federal deficit. He and the leaders of congressional ag committees from both parties have opposed a line in the Obama Administration budget 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.” Lucas told NAAJ.
The version of a 2012 farm bill passed last week by the Senate Agriculture Committee doesn’t cut crop insurance subsidies.
In the past, you could count on the agriculture committees in both chambers of Congress to be able to convince the rest of Congress not touch a program that nearly all farmers consider a key risk management tool.
This year looks a little different.
In April, the cost of crop insurance made it into the pages of The New York Times when a report by the Government Accountability Office, the investigative arm of Congress, on that topic became public. The study was requested by Senator Tom Coburn, a fiscal conservative Republican from Oklahoma. (Coburn, you may recall, was part of the bipartisan “Gang of Six” senators who tried to find agreement on deficit cutting last summer.)
The GAO found that if the same limit of $40,000 on direct payments were applied to federal subsidies for farmer’s 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, with the rest paid to help cover insurance company costs.
Currently, the government 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 who bought crop insurance last year. But it’s worth remembering that less than 10% of the nation’s 2.2 million farms have revenue of $250,000 or more, enough to be considered a commercial farm by USDA economists. And 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.”
What seems like a “large farm” in Washington might surprise you,