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Crop Insurance: “Something’s Gotta Give”

Friday, January 18, 2013

 

In a recently posted blog titled Something’s Gotta Give, Marcia Zarley Taylor proves once again that she is one of the most cogent observers of crop insurance. Taylor is executive editor of the agriculture website DTN, and her post warns farmers that the once-sleepy crop insurance program is taking center stage as Congress starts over on the farm bill. She quickly explains why.

Last year’s drought is pushing crop insurance claims toward a record $15 billion – most of which will be shouldered by taxpayers. Over the years, the cost of crop insurance has steadily grown from $2.9 billion in fiscal year 2003 to $13.1 billion in FY 2012, according to USDA’s Risk Management Agency. That exploding price tag is drawing lots of attention in a year when cutting government spending is at the top of Congress’ agenda.

Taxpayers pick up so much of a farmer’s crop insurance premium that, Taylor writes, “U.S. farmers could be claiming $3.85 for every dollar they paid to insure their 2012 crops.” And this can’t just be dismissed as a result of the drought. Taylor cites estimates by Kansas State economist Art Barnaby that from 1988 to 2011 farmers got back $1.89 for every dollar of their premium payments. Most taxpayers can only dream of getting that kind of return from their auto or homeowners insurance; it doesn’t happen.

Finally, Taylor correctly points out that one reason for the record-breaking claims is USDA’s highly subsidized and very popular Revenue Protection program. This type of insurance policy is so appealing because it’s currently paying out at the drought-inflated crop price, not at the much lower price the crop was insured for last spring. The 2012 guaranteed corn price “jumped from $5.68 per bushel at planting to $7.50 per bushel at harvest,” Taylor notes. Thanks to taxpayers, many farmers who lost their crop are likely to make more money from insurance than they would have earned if the drought hadn’t struck – an outcome she pointed out in her earlier, and aptly titled, “Extreme Insurance” post.

Something’s Gotta Give should be required reading as round three of the farm bill reauthorization debate starts up this year. Taylor predicts changes to crop insurance will be on the table, such as reducing the share of premiums paid by taxpayers, increasing the deductibles on subsidized policies and “further reducing the margins going to agents and insurers” who sell, service and profit from the government program.

I sincerely hope she is once again on the mark. Common-sense reform of crop insurance could create a fiscally responsible and sustainable safety net for farmers while upping much needed investments in conservation, nutrition and healthy food – all while cutting the deficit. That would be a farm bill that just might make it through Congress this time.

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