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Budget Proposal ‘Will Kill Crop Insurance,’ Says Insurance Expert
For farmers who like crop insurance, the outlook could be getting worse.
Two years ago, then President Barack Obama unveiled plans in his budget to trim subsidies for the harvest price option of revenue protection. That was the biggest part of a projected savings of about $18 billion over 10 years. At the time it was pronounced “dead on arrival” by Senate Agriculture Committee Chair Pat Roberts of Kansas.
This week, President Donald Trump’s budget for the 2018 federal fiscal year that starts next October has an even bigger haircut of $29 billion over a decade. That would be accomplished by eliminating harvest price coverage altogether in revenue protection and by capping premium subsidies at $40,000 per farmer. This time, Roberts and House Agriculture Committee chair Mike Conaway of Texas didn’t call the budget dead. Instead, they promised to “fight to ensure farmers have a strong safety net” in the next Farm Bill in a joint statement released Tuesday.
Kansas State University economist and insurance expert Art Barnaby doesn’t know how the politics will play out, although he fears the odds are getting higher that there will be cuts to crop insurance support.
Barnaby is already calculating how the Trump budget proposal would affect farmers.
“If all of this were to pass, it will kill crop insurance. I don’t know why Illinois corn farmers would even buy crop insurance without the harvest price,” Barnaby wrote today in a memo to fellow K-State economists and a Kansas farmer.
Illinois farmers paid premiums for years without collecting much in indemnity payments, Barnaby explained to Agriculture.com. Then, in 2012, a combination of low yields and prices that rose at harvesttime combined to make significant payouts on losses.
Barnaby said the critics of the harvest price option make it sound as though farmers make more income with it, but the way it works, farmers must have a significant yield loss before their revenue falls enough to trigger indemnity payments when crop prices rise at harvest.
“If prices go up and prices are in the money, you need a yield loss to trigger a payment,” he said. That’s not part of the rules of insurance coverage. It’s just the way the numbers work out.
The argument by critics that the harvest price option represents a windfall is one misconception that irks Barnaby.
Another is that the $40,000 cap on insurance premium subsidies would hit only very large farms. Depending on the year, it would take about 1,400 to 2,000 insured acres to hit that cap in Kansas, Barnaby said. In Iowa, the range in acreage affected by the cap is about 1,450 to 2,600 acres.
Currently, farmers pay about 38% of the cost of crop insurance premiums and the federal government picks up the remaining 62% on average. (The percentage paid by USDA varies depending on coverage level, but the dollar-per-acre amount is roughly the same, Barnaby said.)
Under the Trump administration proposal, once farmers go over the $40,000 cap, they would be paying 100% of all of their crop insurance premiums.
Barnaby suspects that farmers would create more farm entities or would have a spouse buy some of the crop insurance in order to avoid the cap, if possible.
The proposal isn’t a new idea. Barnaby said it’s similar to legislation proposed for several years by fiscal conservatives in Congress.
But the efforts to trim USDA support for crop insurance could lead to the eventual demise of crop insurance and a return to disaster payments, he believes. The drought of 2012 was the first time in decades that Congress didn’t authorize disaster payments, Barnaby pointed out.
The one thing Barnaby knows for certain: Opponents of crop insurance will continue to fight to reduce spending on the program.
“They keep coming. They aren’t giving up,” he said.