Leaders of the Senate and House Agriculture committees quickly rejected the Obama administration’s proposed $18-billion cut in the federally subsidized crop-insurance program.
The White House wants to make farmers pay more for the most popular type of revenue insurance policies. The administration said policies with the Harvest Price Option create “the potential for ‘windfall’ profits.” Some 80 percent of crop-insurance policies carry the option, which indemnifies growers for losses at the harvest-time price if it’s higher than the price guaranteed at planting.
“The President is hitting rural America where it hurts most,” said Senate Agriculture chairman Pat Roberts, who labeled the administration proposals for the fiscal 2017 budget as “essentially dead on arrival.” House Agriculture chairman Micheal Conaway said Obama was trying to kill crop insurance.
Like a year ago, the White House wants to scale down the premium subsidy for the Harvest Price Option by 10 percentage points and reform the Prevented Planting Program. The government pays an average 62 cents of each $1 of premium.
Crop insurance is often described by lawmakers and farm groups as a partnership of growers, government and insurers who share the risks and the costs of agricultural production and unpredictable weather. Farmers pay a premium for coverage and see compensation only when they suffer a loss.
“We think in a partnership it makes more sense to be closer to 50-50,” said Agriculture Secretary Tom Vilsack, when asked whether Congress would embrace reform this year after refusing to change the program last December. “It is a belief it [the lower subsidy] is an equitable and balanced partnership.”
The 2014 farm law transformed crop insurance into the central pillar of the farm program. It provides the largest stream of money to growers, around $8 billion a year. Farm groups made crop insurance their top priority in the 2014 law.
Reformers see little chance of success unless there is a broad-scale drive in Congress for budget cuts, which seems unlikely in the near term because of the two-year budget agreement enacted at the end of 2015.
“Hence, any crop insurance reform budget proposal now is at best a conversation starter,” said Ferd Hoefner of the National Sustainable Agriculture Coalition. “It is an important conversation and one that will no doubt intensify as the next farm bill cycle approaches.” The choice for farm-state lawmakers, he said, will be to make sensible reforms, such as the payment limits and conservation requirements attached to crop subsidies “or risk losing the new safety net as part of some future deficit reduction measure.”
“That’s when you’ll see reform … when they need the money,” said economist Bruce Babcock of Iowa State University. “Right now, there is no interest.”
Babcock proposed a replacement for the premium subsidies now provided to producers — a fixed “risk management” co-payment for each acre they farm. Farmers would stay in the crop-insurance program to obtain the co-payment, he said, but “you would find a lot more” clear-eyed selection of policies to reflect a farmer’s needs than to capture a large premium subsidy.
In a study commissioned by the Environmental Working Group, Babcock said growers pay such a small share of premium “that over time most can expect to collect far more in payouts than they pay in premiums.” The rates of return were lowest in the Corn Belt and highest in the Plains and the Southeast. The rate of return varies dramatically across crops and regions, he said.