The budget agreement pending in Congress directs the Agriculture Department to reduce sharply the rate of return to crop insurers in order to save $3 billion over the next 10 years. The cuts, amounting to slightly more than 3 percent of projected spending on the federally subsidized program, were opposed by leaders of the House and Senate Agriculture committees. The House is scheduled to vote on the budget legislation today and the Senate could vote as early as Thursday.
Senate Agriculture chairman Pat Roberts said he would vote against the agreement “because it will undermine the No. 1 risk management tool for farmers in America.” The House chairman, Michael Conaway, said he would vote against the package unless the crop insurance provision was removed. “Make no mistake, this is not about saving money. It’s about eliminating federal crop insurance,” said Conaway.
Under the proposal, the USDA would be obliged to renegotiate the Standard Reinsurance Agreement, effectively the contract between the government and insurers, by the end of 2016 to cap the overall rate of return at 8.9 percent, compared to the current limit of 14.5 percent. The language overturns a guarantee written into the 2014 farm law that any renegotiation must be budget-neutral.
“That provision was classic special interest overreach and deserves to be scrapped,” said the National Sustainable Agriculture Coalition, a small-farmers advocacy group. “While there is a great deal more crop insurance subsidy reform needed to support family farms and the environment, renegotiation is a small but not inconsequential first step toward much needed comprehensive reform.” Insurance rates are set by the government and would not be affected by a lower rate of return allowed to companies, said the coalition.
Crop insurance is the largest strand in the agricultural safety net thanks to the 2014 farm law, which expanded the reach of the program. Its estimated cost is $90 billion through fiscal 2025, roughly double the estimate for traditional crop subsidies and 60-percent larger than land stewardship programs. Farm-state lawmakers made the political calculation in writing the 2014 law that cuts in crop subsidies were inevitable due to pressure to reduce the deficit, so a strong crop insurance system became their top priority. Insurance is easier to defend than subsidies because farmers pay part of the cost of coverage but collect indemnities only when they suffer a loss.
The government pays 62 cents of each $1 in crop insurance premiums, shares the overhead cost of delivering service to growers and shoulders much of the financial burden during crop disasters. Insurance rates are set by the government, which decides where coverage for particular crops can be offered and requires companies to accept all clients.
The Obama administration proposed a variety of reforms in recent years and called for nearly $12 billion in cuts in its fiscal 2016 budget package. Reformers have sought, unsuccessfully, higher premiums for policies with the highest levels of coverage or those purchased by the wealthiest growers, to lower the amount paid annually for overhead costs, or to pare the profits of insurers.
Some farmers “routinely receive more than $1 million a year in crop insurance premium support,” said Scott Faber of the pro-reform Environmental Working Group. The proposed 8.9 percent rate of return to insurers “is still higher than the rate of return most ordinary people can expect on their investments.”
Farm-state lawmakers said crop insurance, particularly the revenue policies that are the most popular part of the program, assure growers they can survive hard times. Michigan Democrat Debbie Stabenow, chair of the Senate Agriculture Committee during work on the 2014 law, said the proposed cuts “would be a major setback for rural America.” In a statement that accompanied the 2014 farm bill, Agriculture Committee leaders said $17 billion had been trimmed from the program in the preceding six years, though renegotiation of the standard agreement and federal “re-rating” of policies, so no more cuts should be allowed for a few years.
Some 297 million acres are covered by crop insurance this year with total liability of $102 billion, says the Risk Management Agency. The government and farmers paid $9.7 billion in premiums. Indemnities so far this year total $2.8 billion. Last year, they were $9.1 billion.