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Crop Insurance: Bad for Taxpayers, Bad for the Environment

Friday, July 13, 2012

Unlimited crop insurance subsidies lead growers to make planting decisions that are bad for the environment, two of the nation’s most respected agricultural economists conclude in a newly published paper.

Their study found that insurance subsidies encourage farmers to plant crops on marginal lands such as wetlands and grasslands, destroying wildlife habitat and increasing the use of farm chemicals.

In their report, titled “Economic and Environmental Effects of Agricultural Insurance Programs,” Daniel Sumner of the University of California-Davis and Carl Zulauf of Ohio State University write:

Evidence-based analysis supports that subsidized crop insurance encourages the movement of crop production onto marginal lands and can result in environmental risks that would not occur in the absence of subsidized crop insurance.

Insurance subsidies create incentives to expand into “environmentally sensitive lands” and “use more inputs,” Sumner and Zulauf said, adding that “subsidized public insurance will increase expected income per acre since farmers are not paying the full actuarial cost of?the insurance.” Their paper was published by the Council on Food, Agricultural and Resource Economics.

One Minnesota farmer, quoted in The New York Times, described the impact of crop insurance more bluntly: “When you can remove nearly all the risk involved and guarantee yourself a profit, it’s not a bad business decision” to plow up marginal lands. “I can farm on low-quality land that I know is not going to produce and still turn a profit.”

As the cost of crop insurance premium subsidies has ballooned from less than $2 billion to $7.4 billion in 2011, their environmental impact has grown as well. But rather than limit and reform the subsidies, the Lucas-Peterson farm bill passed early Thursday by the House Agriculture Committee would boost them by another $9.5 billion.

Although increasing the subsidies, raising crop price guarantees and cutting conservation programs – as committee Chairman Frank Lucas (R-Okla.) and Ranking Member Collin Peterson (D-Minn.) proposed – will have devastating impacts on America’s land and water, they both opposed proposals to require subsidy recipients to implement basic environmental protections. Research by the Environmental Working Group has shown that unlimited insurance subsidies combined with high prices have already contributed to the loss of millions of acres of wetlands and grasslands in recent years.

Some members of the House committee offered an amendment to reduce crop insurance subsidies to farmers who plow up grasslands to grow row crops, but Lucas pressured them to withdraw it. Members of the full House are expected to offer the “conservation compliance” amendment successfully championed by Sen. Saxby Chambliss (R-Ga.) in the Senate when the farm bill reaches the floor.


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