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AgMag BLOG

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Reform is Path to Farm Bill Passage

Wednesday, June 26, 2013

Subsidy reform could provide the path to passage of the farm bill.

Of the 62 Republicans who voted against the House farm bill, 40 voted for the crop insurance reform amendment offered by Reps. Ron Kind (D-Wis.) and Tom Petri (R-Wis.) If they’d had a chance, even more were likely to have voted for other farm subsidy reforms that were blocked from floor consideration by the House Rules Committee.

If 40 of the same Republicans who voted for crop insurance reform had voted for final passage, the bill would have narrowly passed.

As David Rogers noted in Politico:

On two reform issues – crop insurance and international food aid – a solid majority of this same Republican bloc sent a strong message of support that amounted to a real breakthrough politically. If a farm bill is to be resurrected, these two bipartisan votes are fertile ground for compromise.

Rogers went on to suggest that a less ambitious crop insurance amendment might have persuaded more Republicans to vote for final passage. But it’s just as likely that the reforms offered by Rep. Kind – means testing, payment limits, greater transparency and subsidy cuts for insurance companies – did not go far enough for fiscal conservatives.

A farm bill that cuts more from commodity and crop insurance programs could well be the path to final passage. And a farm bill that includes real reform could largely be designed to affect less than 5 percent of America’s farm businesses.

If added to the House farm bill, the following reforms could have yielded almost $50 billion in additional savings while still providing farmers with a generous safety net:

  • Eliminate New Price and Revenue Guarantees – Price guarantees set just below or even above record crop prices, coupled with new revenue guarantees, would cost taxpayers $23 billion over the next decade, according to the Congressional Budget Office (CBO), and duplicate the $90 billion crop insurance program.
  • Eliminate the Supplemental Coverage Option – Subsidizing farmers to increase their government-financed revenue insurance guarantees to 90 or 95 percent of their average revenue would cost the taxpayers $3.8 billion over 10 years, CBO estimates.
  • Eliminate the Harvest Price Option – Prohibiting farmers from linking their revenue insurance claims to the price at harvest (rather than the price they expected to earn when they planted in the spring) would save taxpayers almost $8 billion over ten years, according to CBO.
  • Eliminate STAX – Eliminating a costly new supercharged revenue insurance program for cotton farmers would save the taxpayers $3.7 billion over the next ten years, CBO calculates.  Cotton farmers would still be eligible for the same subsidized crop insurance as other farmers.
  • Eliminate Peanut Revenue Insurance – Eliminating a new special peanut revenue insurance program – tied to the price of peanuts in Rotterdam – would save the taxpayers $300 million over 10 years. Like cotton farmers, peanut farmers would still be eligible for crop insurance.
  • Reduce Insurance Company Subsidies – Lowering the cap on subsidies to insurance companies from $1.3 billon a year to $900 million a year and only guaranteeing farmers a 12 percent rate of return (down from 14 percent) would save $5.3 billion over ten years.
  • Means Testing and Payment Limits – Subjecting crop insurance subsidies to a means test and limiting premium subsidies to $50,000 per farmer would generate $5.3 billion in savings.

Finally ending direct payments, eliminating new price guarantees and reforming crop insurance through means tests and payment limits, by eliminating windfall profits, and by refusing special giveaways to cotton and peanuts would save enough funds to avoid cuts to anti-hunger and environmental programs and still exceed deficit reduction targets.  

What’s more, these reforms could be designed so that most of America’s farm businesses would not be affected at all. That’s because most farmers receive less than $50,000 in crop insurance premium support and have an Adjusted Gross Income of less than $250,000.

Simple Reforms Yield $49 Billion in Savings

Reform

Savings (billions)

Eliminate price and revenue guarantees

$ 23.0

Eliminate SCO

$  3.8

Eliminate HPO

$  7.7

Eliminate STAX

$  3.7

Eliminate peanut insurance

$  0.3

Reduce company subsidies

$  5.3

Payment limits, means testing

$  5.3

 

 

Total estimated savings:

$49.1 billion