With farm income in a slump, the government should be a partner, not an adversary, to farmers and ranchers, said the chairman of the Senate Agriculture Committee in ruling out cuts to the federally subsidized crop insurance program, which costs roughly $8 billion a year. “Let me emphasize that crop insurance is, for many, the most valuable tool in the risk management toolbox,” said chairman Pat Roberts at a farm policy summit in Manhattan, Kan.
“Now is not the time for additional cuts to a program that producers rely on as a risk management foundation,” said Roberts, who added that he expects to see “outside groups and members of Congress looking to gut the crop insurance program and cut billions of dollars in the name of ‘reform.’ ”
Farm groups are giving top priority to the preservation of crop insurance, a perennial target for deficit hawks and anti-tax groups. Their allies in Congress have ignored President Trump’s proposal for a 36 percent cut in crop insurance spending. The proposal would limit the government’s share of premiums and eliminate premium subsidies for policies that carry the so-called “harvest price option.” At the moment, the government pays an average of 62 cents of each $1 of premium. An estimated 80 percent of crop insurance policies carry the harvest price option, which indemnifies growers for losses based on crop prices at harvest if they are higher than the price guaranteed in the spring when the policy was purchased.
Congressional work on the new farm bill could begin within weeks. House Agriculture chairman Michael Conaway says that if he gets the go-ahead from House Republican leaders, his committee will draft a bill in time for a House vote this winter. That would allow ample time for the House and Senate to work out differences and enact legislation before the 2014 farm law expires in fall 2018.
“First, we need to ensure that producers have risk management tools at their disposal,” said Roberts. Risk management, often used as a synonym for crop insurance, can include crop subsidies.
Roberts said lawmakers will have to be fiscally prudent while writing the farm bill, given the pressure to reduce the federal debt. “We must ask tough questions and reexamine programs to determine their effectiveness,” he said. “Passing a farm bill in this environment is going to be challenging.”
The chairman listed three other steps that would benefit the agriculture sector: “Reduce regulatory burdens that hurt producers’ bottom lines,” expand farm exports, and pass a tax reform package that reduces tax rates.
Crop insurance is popular in farm country — 290 million acres of farmland were covered by crop insurance in 2016, according to the USDA. High yields for crops such as corn and soybeans reduced the need for crop insurance payouts, which totaled $3.8 billion last year. The loss ratio — indemnities compared to premiums — of 0.41 was the lowest in 27 years, according to economist Gary Schnitkey of the University of Illinois. Following the 2012 drought, crop insurers paid $17.45 billion in indemnities. Over the past decade, the loss ratio was 0.81, meaning insurers collected more in premium than they paid out.
According to USDA economists, crop subsidies, disaster payments, and crop insurance indemnities “typically represent 15–20 percent of annual net cash income for the farm sector.” Net cash income is a measure of liquidity, or the ability to pay bills.