Crop Insurance: An Annual Disaster for Taxpayers and the Environment

Washington, D.C. – When you buy home or car insurance, you expect to collect only when there’s a disaster. If there was a policy that paid out year after year, you only had to pay less than half of the premium and you’d actually make money from buying it, you’d jump at it – but the insurer would be foolish.

According to a new report from Environmental Working Group, that’s the deal more than a million farmers – including big, rich agribusinesses – are getting through the federal crop insurance program. And the insurer is the American taxpayer.

EWG’s analysis found that the federal crop insurance program is much more costly to taxpayers and more harmful to the environment than the disaster payment program it has largely replaced. EWG analyzed crop insurance and ad hoc disaster payment data and reviewed scientific and economic studies of the two approaches to farm assistance, and found:

  • In the six years between 1999 and 2008 in which Congress authorized large ad hoc disaster relief programs, the total cost to taxpayers of crop insurance (which does not include the share of premiums paid by farmers) was almost $20 billion – nearly a third larger than disaster payments.
  • Over those six years, crop insurance payouts (which include farmer-paid premiums) were $11 billion more than ad hoc disaster payments. Insurance payouts topped disaster payments every year except 2005.
  • Taxpayer-funded premium subsidies mean many farmers actually make money by buying crop insurance since payouts regularly exceed the share of premiums paid by farmers. The Government Accountability Office says some farmers gain almost $2 in profit for every dollar they pay in premiums.

Click here to read the full report: Crop Insurance: An Annual Disaster.

Crop insurance was originally designed as a safety net for farmers. But the program has strayed far from its roots thanks to government premium subsidies and virtually guaranteed payouts. The report says swapping crop insurance for disaster programs has created “a different kind of disaster – for taxpayers and the environment.”

“Whenever crop insurance is criticized, the agricultural industry and its political patrons argue that it’s at least better than disaster payments – but the facts show this is simply untrue,” said Anne Weir, EWG senior economics analyst and author of the report. “Crop insurance is not what most people would recognize as an insurance policy, but is essentially an income support program.”

What’s more, crop insurance is worse for the environment than disaster programs were. Insurance payouts are so generous and so frequent they encourage farmers to plant crops on sensitive land, exacerbating environmental consequences of high risk farming practices.

“Crop insurance needs to return to its roots as a safety net instead of what it has become: a burden on taxpayers and the environment,” said Weir. “Congress should make sure the program shields farmers from potentially crippling losses because of bad weather, but in a way that saves taxpayer money and does not encourage environmental harm.”

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