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Bad Ideas Spring From Drought

Bad Ideas Spring From Drought

Friday, July 20, 2012

Some members of Congress appear eager to jam through a costly drought disaster relief program with a flawed farm bill. In an AgMag post entitledBad Ideas Spring from Drought,” Environmental Working Group’s Scott Faber points out that Congress has already provided farmers with a gold-plated disaster program called crop insurance - and it will pay farmers indemnities regardless of whether Congress passes a farm bill.

Faber writes:

In states like Iowa, Illinois, and Indiana – where the drought’s impact on farmers is the worst – more than 80 percent of crop farmers have obtained taxpayer-subsidized insurance.

Yesterday, Iowa State University agricultural economist Bruce Babcock and Craig Cox of the Environmental Working Group explained why crop insurance will provide farmers support during the drought. Click here for video.

In fact, Babcock noted that many farmers stand to make more money even if the drought cuts into their yields because of the peculiar way crop insurance works: some farmers have purchased a revenue protection policy that allows them to collect a payment tied to the “harvest price” of their crop in October rather than the average price in February.  As yields fall during the drought and crop prices inexorably rise, so too does the “harvest price” farmers can “earn” from failed crops.

It’s the taxpayers who should be worried, not crop insurance companies, because the taxpayers absorb a larger and larger share of the indemnities paid to farmers as crop losses mount, according to Babcock.  The losses crop insurance companies might experience are capped, but there is no cap on the losses taxpayers will pick up.

That’s right. Taxpayers pay three times.  We pay most of the insurance premiums. We pay insurance companies to sell the policies. And we pay much of the indemnities, especially during a year with very bad weather and big losses.

Click here to read the full post.

Table Scraps:


Biofuels Digest reports on biofuels company Coskata's decision to break away from biomass and use natural gas as its main feedstock for several of its "commercial-scale projects."

KRQE-TV reports that city slickers in Albuquerque, New Mexico received farm subsidy payments without actually being farmers. The television story feature’s EWG’s Don Carr saying, “You can be an investor in farm land. You can be a very well-off individual living in most every major, American city. By virtue of just owning farm land, you get subsidies."

A Financial Times article (subscription required) details how the congressional ethanol mandate will impact local and global corn markets during this drought. “One of the peculiarities of the ethanol mandate is that regardless of how dire the corn crop may be, ethanol always eats first” EWG’s Scott Faber told the paper.

Tweet of the Day:

@davidmwessel How is this year's drought different from all other droughts. Great NYT graphic.

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