By Craig Cox - 02/27/13 12:57 AM EST
The budget proposal recently released by Senate Democrats is the first piece of good news in what has been a long, drawn-out and disappointing attempt to reauthorize the farm bill. Thanks to the leadership of Sen. Debbie Stabenow (D-Mich.), chairwoman of the Senate Agriculture Committee, the proposal would end the farm subsidies known as “direct payments” and split the savings between deficit reduction and restoring indefensible cuts to programs on conservation, healthy food and nutrition.
This is the first step toward true reform of the nation’s outdated farm policies.
The more urgent task now is to reform the heavily subsidized crop insurance program. The program’s cost to taxpayers ballooned from $2 billion in 2002 to $11 billion in 2011. Taxpayers pick up, on average, 62 percent of the cost of a grower’s policy premium, pay crop insurance companies $1.3 billion a year to sell and service policies and are on the hook for most claims when bad weather strikes or crop prices fall.
Crop insurance premiums are so heavily subsidized that Kansas State economist Art Barnaby estimates that farmers got back $1.89 for every dollar they paid to insure their crops between 1998 and 2011. That smells a lot more like a cash handout than an insurance program. The crop insurance program, sold as the way to reduce the need for ad hoc disaster payments, has grown into the most expensive way for taxpayers to prop up farm income.
The bad weather that hit the Corn Belt last year will push the cost of the program through the roof. USDA Chief Economist Joe Glauber, in testimony before the Senate Agriculture Committee on Feb. 14, projected that total payouts for last year’s claims will reach $17 billion. And taxpayers, not crop insurance companies, will be on the hook for the vast majority of that — $15.8 billion, according to USDA’s Risk Management Agency.
The cost is driven up by over-generous insurance policies that pay for losses at drought-inflated prices, instead of the much lower price the crop was insured for last spring. Despite the drought, the Federal Reserve Bank of St. Louis reported that Midwestern farm incomes actually rose in the fourth quarter of 2012 thanks to record crop insurance payouts.
Adding salt to the taxpayer’s wound, Iowa State University economist Bruce Babcock has estimated that for every crop insurance dollar that finds its way to a farmer, another dollar goes into the pockets of a crop insurance company or agent.
The ongoing bad news in the fight for reform is the cynical game of bait-and-switch enshrined in both versions of the farm bill that stalled out last year. Supporters trumpet the fact that they will finally be ending the utterly discredited direct payments. They draw less attention to the fact that they want to use two-thirds of the savings to gin up a new set of entitlements that are actually worse for the taxpayer and the environment.
The new entitlements would essentially pick up the deductibles on an underlying crop insurance policy — at taxpayers’ expense, of course. Covering these so-called “shallow losses” would cost an additional $34 billion on top of the $90 billion already slated for the crop insurance program. The House Agriculture Committee raised that ante by also locking in high crop prices, reversing years of progress toward a more market-oriented agriculture policy.
All this, while the agricultural economy is thriving. Farm operations, far from the iconic struggling farmers evoked in the Super Bowl “God Made a Farmer” ad, are doing very, very well. Farm household income has eclipsed U.S. household income every year since 1996. USDA’s Economic Research Service estimates 2013 net farm income at record $128 billion. I am more than happy to see farmers doing well, but as The Washington Post recently asked, should taxpayers be expected to make them rich?
Ending direct payments and smart reform of crop insurance would leave a fiscally responsible and effective safety net in place for farmers while saving enough money to fund conservation and nutrition programs and a host of critical provisions that help Americans improve their diets. And these measures would do more for deficit reduction than the farm bill proposals in front of Congress now.
A farm bill that helps growers when they really need it and meets the needs of all Americans and the environment — while cutting wasteful spending — should be the only farm bill that makes it to the president’s desk.
Cox is the senior vice president for agriculture and natural resources at Environmental Working Group.