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Cuts target farm programs, insurance

Once again, farm programs are on the chopping block in Washington.

Tuesday, House Budget Committee Chairman Paul Ryan (R-WI) released a budget that would trim $4.6 trillion in federal spending over the next decade, by cutting spending on Medicare, repealing part of Obamacare and giving more authority to states to run nutrition programs. But it also targets farm programs.

"Taxpayers should not finance payments for a business sector that is more than capable of thriving on its own," says the Budget Committee's "The Path to Prosperity: A Responsible, Balanced Budget."

"This budget calls on the House Agriculture Committee to revisit current farm-support programs, such as the fixed payments that go to farmers irrespective of price levels and the current structure of the crop-insurance programs," says the proposal from the committee headed by the Republican party's 2012 vice presidential candidate. "Recognizing that the Agriculture Committee is responsible for implementing these reductions, and to maintain flexibility for the Committee, this proposal does not dictate the specific changes to the programs in under the Committee’s jurisdiction. These reforms will save taxpayers $31 billion over the next decade."

House Agriculture Committee Chairman Frank Lucas (R-OK) praised Lucas for producing a budget and promised that his committee will do its part to find savings.

"Last year, we developed a reform-minded, fiscally responsible farm bill that contributed to deficit reduction and we will continue on that same course this year.  We will consider the suggestions contained in Chairman Ryan’s budget, as is customary for the Agriculture Committee to consider a variety of viewpoints when crafting comprehensive legislation," Lucas said in a statement.

But the ranking Democrat on the committee, Representative Collin Peterson of Minnesota, called the budget "political messaging."

“The House Agriculture Committee has repeatedly shown that it is possible to work together to find budget savings in a bipartisan fashion by making balanced cuts across farm bill programs. It wasn’t an easy process but we did it because that’s our job. If the House Republicans do take the Ryan budget numbers seriously, I don’t see how they can be serious about passing long-term farm policy this year. If these are the budget priorities for the House Majority, agriculture might best be served by again extending the current farm bill.”

But behind the public pronouncements, some members of congressional agriculture committees seem to be preparing to write farm bills that will spend less than they would have a year ago.

Early on Tuesday, Senate Agriculture Committee member Chuck Grassley (R-IA), told Agriculture.com that there might not be new commodity programs in the next farm bill.

"I think that we're going to end up with probably just one safety net for farmers in the new farm bill, and that's going to be crop insurance," Grassley said.

Grassley said he supports the programs passed in last year's version of a farm bill in the Senate -- Agriculture Risk Coverage and the Supplemental Coverage Option -- programs intended to cover shallow losses not protected by crop insurance. But if they "might undo crop insurance,” he has questions about them, he said.

"What I hear from the farmers isn't some new program. I'm hearing from farmers: preserve crop insurance," Grassley said.

Crop insurance, too, is coming under attack.

Last week Senator Jeff Flake (R-AZ) and Representative John Duncan (R-TN) introduced the "Crop Insurance Subsidy Reduction Act of 2013," which would roll back federal subsidies for farmers' premiums to the level they were at before crop insurance legislation was changed in 2000. In that year farmers paid more than 62% of crop insurance premiums, on average. Last year farmers paid less than 38%.

Crop insurance is projected to cost about $8.6 billion a year until 2023, according to the Congressional Budget Office, making it the most expensive program left in the USDA budget for farmers.

The Environmental Working Group, along with a coalition of groups that favor smaller government and lower taxes, supports the Flake-Duncan bill.

"If we're going to preserve crop insurance as the core of a safety net for producers, which EWG would support and work for, I think it's important to make sure crop insurance remains fiscally responsible," Craig Cox, EWG senior vice president for agriculture and natural resources told Agriculture.com

Iowa State University Economist Bruce Babcock believes high levels of crop insurance are encouraging farmers to take other kinds of risks, including paying high levels of rent for land.

"To me it makes economic sense not to try to push farmers to buy the most expensive kids of insurance," Babcock told Agriculture.com. "You can take more risk because you've got the 85% revenue coverage."

If subsidies were reduced, Babcock believes farmers would continue to use crop insurance, but at lower levels of coverage.

"It would be more self insurance, but they would be managing their risk with other means, perhaps more diversification of crops," Babcock said.

The Flake-Duncan bill would save $4 billion a year from crop insurance costs to the federal government, according to press releases from Flake and Duncan.

Cuts would not be the same at every level of coverage. The bill amends the 2000 Agriculture Risk Protection Act's payment schedule. The federal subsidy for the 85% coverage level would fall from 38% to 13%. The subsidy for 75% coverage would drop from the current 55% to 24%.

The staff at Senator Flake's office told Agriculture.com in an email message that the legislation would not change subsidy levels for insurance sold for enterprise units, which covers farms in more than one section of a county. Those premiums are currently subsidized by as much as 80% by USDA, depending on the coverage level the farmer chooses.

Lobbyists representing the crop insurance industry are skeptical that the legislation would spare enterprise units, a form of insurance chosen by an increasing number of larger farms after it was introduced in the 2008 farm bill.

Stephen Frerichs, a consultant whose clients include Rain and Hail Agricultural Insurance, told Agriculture.com that he believes that the premium subsidy payment schedule would apply in the same way to enterprise units.

David Graves of the American Association of Crop Insurers said, "I'm sure they intend to apply it to everything. They're not interested in the program and whether it works or not."

Members of the agriculture committees in Congress are still strong supporters of federal support for crop insurance. Grassley believes it's more efficient to have farmers pay part of the costs of an insurance program that makes payments quickly than to have farmers asking for disaster relief coming directly from the federal government. And he sees it as no different than Congress supporting victims of Hurricane Sandy and other natural disasters.

Grassley said Tuesday that the crop insurance industry has already taken reductions in spending of about $6 billion over 10 years in the 2008 fcaarm bill and another $6 billion when the USDA renegotiated its standard reinsurance agreement with crop insurers in 2010.

But Grassley said it's possible that any farm bill passed this year might include a requirement to tie conservation compliance to eligibility to buy crop insurance.

He said he doesn't expect the Flake-Duncan bill to pass by itself.

"I don't think any changes are going to be made until we get to the farm bill debate," he said.

Frerichs agrees that the Flake-Duncan bill is unlikely to pass.

"I don't think that, as structured, it's going to have any chance, but it definitely opens up the dialogue about subsidies," he said.

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