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AgMag BLOG

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Top Economists Say Crop Insurance Reform is a No-Brainer

Friday, December 19, 2014

Two of the nation’s leading agricultural economists say federal crop insurance is greatly over-subsidized, adding yet another authoritative voice to those calling for reform.

For years, EWG has been pushing Congress to reform the crop insurance program in order to save taxpayers billions and protect land and water quality. But key members of the House and Senate Agriculture committees who represent farm country routinely defend the extravagant subsidies.

This week, two agricultural economics professors, Carl Zulauf of Ohio State University and David Orden of Virginia Tech, argued in an analysis published by the International Food Policy Research Institute, a Washington, D.C.-based think tank, that “US crop insurance is over-subsidized…”

Rather than the current 62 percent subsidy, they calculated, taxpayers should cover a much lower amount – 45 percent.

What exactly does that mean?

To encourage farmers to sign up for crop insurance, the government pays nearly two-thirds of the premiums.

Not surprisingly, farmers love this. They get great coverage on the cheap. 

But for taxpayers, the price is steep. From 2003 through 2012, premium subsidies cost the American public $42.1 billion.

Earlier this year, the authoritative Government Accountability Office reported that reducing the premium subsidies would save millions.

Members of Congress, too, have voiced support and even offered legislation to lower the premium subsidies, only to see the language deleted at the last minute.

Cutting the subsidies to 45 percent, Zulauf and Orden wrote, would “reduce both the public cost of crop insurance and the market and environmental distortions that result from excessive subsidies for risk that can be insured effectively by the private market.”

A change that pays off for taxpayers and the environment? Sign me up.

By the time the next farm bill rolls around, even members of Congress who support these subsidies will have a harder time arguing for them.

The truth always prevails, even if it takes a little longer than it should.