Insurance cuts would hit farmers
Farmers would take a big hit in cuts to crop insurance premiums proposed in the Obama Administration’s 2013 USDA budget released Monday. That idea isn’t going over well, either in Congress or among farm groups.
“There’s pretty much unanimous agreement among farmers and here in Congress that we need a strong crop insurance program,” Senator Chuck Grassley (R-IA), a member of the Senate Agriculture Committee told Agriculture.com Tuesday.
According to this detailed breakdown of the USDA budget, the federal government would save $3.3 billion over 10 years by cutting subsidies on farmers’ premiums. “The proposal would reduce the premium subsidy levels by 2 percentage points for those policies that are currently subsidized by more than 50 percent,” says page 101 of that appendix to the budget. Currently, USDA subsidizes about 60% of farmers' premium costs.
That savings from lowering subsidies is about a tenth of what USDA estimates would be saved by doing away with direct payments. So far, USDA already has cut billions of dollars from crop insurance by lowering the reimbursement it pays to private insurance companies for their administrative and operating expenses from delivering federal crop insurance. It’s proposing doing that again, too, for an estimated savings of $2.9 billion over 10 years.
“The current cap on administrative expenses to be paid to participating crop insurance companies is based on the 2010 premiums, which were among the highest ever,” the budget document says. “A more appropriate level for the cap would be based on 2006 premiums, neutralizing the spike in commodity prices over the last four years, but not harming the delivery system.”
USDA also seeks to save another $1.2 billion over 10 years by lowering crop insurance companies’ return on investment from 14% to a 12% target.
Even agricultural leaders in Obama’s own party aren’t going along with this.
“I am encouraged the President agrees that direct payments are an indefensible program of the past, but do not agree with further cuts to crop insurance, which is a critical risk management tool,” Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) said in a statement Monday. “I have heard loud and clear that strong, effective risk management is the number one priority of farmers and producers across the country. Farming is a high risk business and we don’t want farmers and other small businesses going under because a few days of bad weather – it jeopardizes the economy and the safety of our national food supply.”
House Agriculture Committee Chairman Frank Lucas (R-OK) concurred on crop insurance. “President Obama’s proposal to cut crop insurance threatens the integrity of the program itself,” Lucas said. “And, he ignores other areas for savings such as streamlining or eliminating duplicative programs in conservation, or closing loopholes in nutrition spending.”
The American Soybean Association on Tuesday pointed out that the group has accepted possible elimination of direct payments as a contribution to federal deficit reduction.
“However, with the enormous amount of risk farmers are about to undertake by planting a new soybean crop, now is exactly the wrong time to reduce support for the federal crop insurance program,” ASA said in a statement. “The proposal put forth in the president's budget would reduce support to farmers who purchase the highest levels of coverage—a backwards approach that discourages producers from purchasing enough coverage to meet their substantial risk management needs.”
Of course, few expect President Obama’s budget to be adopted by Congress.
As Grassley pointed out Tuesday, when his party forced a vote on the Administration’s budget last year, it was defeated by 97 votes in the Senate.
“A vote like that on the President’s budget says it has bipartisan dislike,” Grassley said.
That doesn’t mean crop insurance is safe from cutting, however. Budget hawks in the House of Representatives have also proposed cutting subsidies to farmers’ crop insurance premiums.
And if Congress doesn’t write a Farm Bill this year, crop insurance, like much of USDA spending, would face automatic cuts in 2013 as a result of deficit cutting legislation passed last year.