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A Second Crop Insurance Critique

On Tuesday a Minnesota farm group released the second of three white papers on what it charges are flaws in the nation’s crop insurance program.

Federal crop insurance has become an engine for consolidating land and financial resources in rural communities in Minnesota and across the country, the study by the Land Stewardship Project (LSP) says. Launched in 1938 to provide a basic safety net for farmers facing severe weather catastrophes, crop insurance has in recent years become a major vehicle for directing benefits into the hands of some of the largest crop producers in the country, according to the "Crop Insurance Ensures the Big Get Bigger" white paper, which is based on an analysis of government data and farmer interviews.

"We need a crop insurance program that provides a basic, reliable safety net for farmers like me," said Darwyn Bach, who raises corn and soybeans in southwestern Minnesota's Yellow Medicine County. "But what we've ended up with is a tool that guarantees income in times of high grain prices, which has created a land rush by the largest crop operators."

In 2011, the top 10% of crop insurance premium subsidy recipients represented just 2.3% of America's farmers, but they took in more than half of all premium subsidies paid out of the public treasury -- $4 billion, according to the LSP study. These 50,000 farms each received an average of $82,223 in crop insurance premium subsidies, while the remaining farmers who have crop insurance received an average of $7,639 each.

Minnesota is home to two operations that in 2011 each received over $1 million in insurance premium subsidies, and an additional seven that each received more than $500,000 in premium subsidies that year. The state’s number one crop insurance premium subsidy recipient in 2011 garnered $1,667,852 on 26,835 corn and soybean acres in Dakota, Dodge, Fillmore, Goodhue, Mower, Olmsted, Rice, and Wabasha counties.

Providing guaranteed income on even marginal farmland has resulted in an unprecedented upward increase in farmland prices, which has pushed beginning farmers out of the market, according to the LSP white paper. The latest U.S. Census of Agriculture found that between 2007 and 2012, the number of farms in the U.S. dropped 4.3%, while the average size of farms rose 3.8%. The Census found that in Minnesota, for example, a short-term trend of increased farm numbers has been reversed. The only size category of Minnesota farms that increased from 2007 to 2012 was the one consisting of operations over 2,000 acres in size — their numbers jumped by 14%.

"When grain prices are high, you could be guaranteed $1 million to $2 million in income if you have 5,000 to 10,000 acres," said Bach. "When there's no risk in farming more land, people go out and bid up rental rates and land prices. It's a snowball effect. And the irony is that the public is footing the bill for something that's causing so much harm out in the countryside."

And the bill is growing, the LSP study says. The crop insurance program cost taxpayers $58.7 billion between 2003 and 2012, and it's projected to cost $90 billion over the next 10 years. Despite the growing price tag, farmers, landowners, and farm investors who are enrolled in the crop insurance program receive premium subsidies on each and every acre and for every bushel of production without limit, and regardless of their income or ability to pay.

"That's wasteful. We need to look at reforms like establishing an adjusted gross income limit so that wealthy individuals either don't receive premium subsidies or receive a reduced amount of premium subsidies from the public treasury," said Amy Bacigalupo, one of the authors of the LSP white paper. "Reducing subsidies for wealthy farm operators who can already afford insurance is smart, fiscally sound policy."

Huge subsidies that benefit the largest crop operators have caused well-documented environmental problems as well. As national studies show, increased crop insurance subsidies encourage the farming of marginal land -- acres too erosive, wet, or otherwise fragile to raise a good crop on. By guaranteeing income no matter what those acres yield, there is no longer an economic brake on plowing up those acres.

"Land was being put into production that should have never been put into production -- that was a big factor with crop insurance," said Bach. "As one guy told me, 'The problem is there's a lot of guys not farming the land anymore, they're farming the crop insurance program.' "

"Crop Insurance Ensures the Big Get Bigger" is number two in a series of three LSP "Crop Insurance -- How a Safety Net Became a Farm Policy Disaster" white papers. The first two white papers are available here.

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