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Taxpayers Get Soaked to Prop Up Farm Income

Thursday, May 2, 2013


Federally subsidized crop insurance is now the most expensive program supporting farm income, so it’s no surprise that it will be at the center of the Senate Agriculture Committee’s deliberations on the 2013 farm bill, starting later this month. And as it happens, last year’s epic drought, which decimated crops across a wide swath of America, afforded a unique opportunity to assess the effectiveness of a program whose costs have ballooned to $9 billion a year, according to the Congressional Budget Office.

As farm program watchdogs, Environmental Working Group wanted to see whether it’s possible to save taxpayers some of that scarce money while still providing an effective safety net for farmers facing weather disasters. So we commissioned economics professor Bruce Babcock of Iowa State University to analyze how the heavily subsidized crop insurance program performed during last year’s drought.

In the report released yesterday, Babcock found that:

·      Overly generous subsidies have transformed crop insurance from a risk management tool to a farm income support program.

·      Taxpayers could provide corn and soybean farmers with a secure floor under their finances for no more than $6 billion. That’s less than half of the cost of the crop insurance program. Less. Than. Half.

·      Taxpayers will fork over almost 75 percent of 2012’s gross underwriting loss, at a cost of $12.1 billion.

·      The federal insurance program cost taxpayers far more last year than the expense of traditional disaster relief. (The farm lobby argues that subsidized crop insurance avoids the need to provide relief one disaster at a time.)

·      Since 2001, insurance companies – many based in foreign countries – have enjoyed $10.3 billion in underwriting gains paid for by U.S. taxpayers.

Babcock’s analysis should be required reading for austerity-minded lawmakers. It adds to the growing evidence that uncontroversial reforms to crop insurance would save taxpayers billions while providing a solid safety net for working farm families. But the agribusiness lobby still has a stranglehold on Congress, as evidenced by the farm bill proposals that the Congressional agriculture committees put forward last year. If that legislation had become law, Americans would be paying even more for crop insurance. At the same time, programs that protect water and reduce climate-altering greenhouse gases would have been cut.

The government’s heavy support for crop insurance is questionable for other reasons:

·      Without conservation requirements, the crop insurance program encourages farmers to make risky planting decisions on marginal and erosion-prone land.

·      The U.S. Department of Agriculture currently boots farmers out of the crop insurance program for planting cover crops that help restore soil vitality and keep carbon out of the air.

·      The program is prone to fraud and abuse.

Now that Congress is about to debate the nation’s farm policy again, it should take a hard look at reforming the crop insurance program. If done right, crop insurance can provide a true safety net while helping heal the climate, protect water and land – and conserve the scarce resources of the beleaguered American taxpayer.

All it takes is for Congress to display some political courage.