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AgMag BLOG

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Crop Insurance Creates "Destructive Incentives" for Farmers: NRDC Study Confirms Fundamental Reform is Needed

Tuesday, August 27, 2013

A report released today (Aug. 27) by the Natural Resources Defense Council supplies the latest evidence that the federal crop insurance program desperately needs fundamental reform.

NRDC analyzed one piece of the insurance puzzle – how policy premiums are set – and concludes that federal crop insurance:

  • “encourages risky production methods and will become increasingly expensive to administer unless changes are made.”
  • “is creating destructive incentives for farmers…”
  • “has created brittle farming operations that lack resilience and a spiral of ever-increasing taxpayer-subsidized indemnities.”

The author’s analysis echoes the findings of a host of broader assessments of the crop insurance program. Iowa State University Professor Bruce Babcock, for example, found in a series of analyses commissioned by Environmental Working Group that the crop insurance program generates large windfall profits for insurance companies and potentially makes big payments to farmers who suffer only paper losses; costs taxpayers a dollar for each dollar of benefit it delivers to farmers; and allows growers to make more money from insurance payouts than they would from a healthy harvest.

Critiques of the crop insurance program by Professor Babcock, NRDC and others all point to one fundamental problem – taxpayers are picking up far too much of the risk and farmers and insurance companies too little. As a result, farmers are encouraged to plow up fragile land and use risky practices. Moreover, insurance companies have no incentive or ability to reward growers who farm more sustainably.

EWG’s studies have repeatedly documented the consequences of the “brittle farming operations” cited in the NRDC report, which are promoted by over-subsidized crop insurance and result in plowing up millions of acres of fragile land along with severe erosion and polluted runoff from poorly protected crop fields.

EWG has long argued that Congress could and should take two immediate steps to reform the crop insurance program:

  1. Immediately reattach conservation compliance provisions to crop insurance premium subsidies – a quid pro quo that requires farmers to protect fragile land in return for accepting generous subsidies; and
  2. Begin a process of cutting back crop insurance premium subsidies.

History shows that conservation compliance works and is supported by a majority of farmers. Asking farmers to take basic steps to protect fragile cropland and wetlands will help ensure that conservation-minded growers don’t end up paying higher premiums because of risky behavior by their neighbors.

Cutting back inflated premium subsidies will save taxpayers billions and encourage producers to take important steps – including conservation measures – that reduce the risk of crop losses and simultaneously improve the environment.

Common-sense reform of the federal crop insurance program would create a highly effective and fiscally responsible safety net for farmers and end the destructive incentives that NRDC so accurately portrays in its new report.