Report slams government crop insurance payments

By Kathleen Masterson (Harvest Public Media)

Far too many tax dollars are going directly into the pockets of private crop insurers, according to  a new report from a noted economist who helped design the government’s initial revenue crop insurance program in the 1990s.

As I reported earlier, crop insurance costs are ballooning at the taxpayer's expense. For that story I spoke with Iowa State University ag economist Bruce Babcock. The government pays far too much of farmers' insurance premiums, Babcock said, which encourages farmers to buy excessively high levels of expensive revenue coverage.

Babock's new report, which was commissioned by the advocacy organization Environmental Working Group, adds more data to the argument.

"If the revenue subsidies were limited to just those levels that were available for yield insurance, you could generate about $40 billion over ten years in savings," Babcock said.

This year, 83 percent of farmed acres carried revenue insurance, while only 17 percent of farmed acres were covered by yield insurance.

Babcock's calculations show that if the government only subsidized yield insurance, this year’s insurance spending would be nearly cut in half. Actual spending is projected to be $8.6 billion. Yield insurance subsidies would cost the government an estimated $4.7 billion. (Check out our chart to see how many of those dollars go directly to private insurers.)

The report argues that insurance and ag lobbyists are angling to shift dollars currently used for direct payments into an even more souped-up revenue insurance program. Babcock says that would be moving in the wrong direction.

"Given that revenue insurance is costing so much, it's surprising that it looks like the ag committee leadership is ready to pass another revenue insurance program -- a free one -- on top of the existing revenue insurance program, in the name of constituting a stronger safety net to replace direct payments," Babcock said.

Babcock's report is an unabashed critique of the government's payments to the revenue crop insurance program. But it's unclear if its criticism -- or its suggestions for savings -- will reach the powers shaping the 2012 farm bill. Even as mainstream media sources tuned in to the report's release, the crop insurance issue doesn't seem to be getting much coverage outside of agriculture journals.

The government's revenue crop insurance policy choices will have big ramifications for the agriculture industry, farmers and taxpayers. Babcock stressed that cutting revenue insurance would save far more money (perhaps as much as $40 billion) than the modest cuts that President Obama proposed, which are estimated to trim $8 billion from the crop insurance program over the next decade.

"A better program, more efficient from taxpayer point of view, would be a catastrophic type of yield insurance program (designed) to protect against the widespread droughts, the widespread excess moisture and widespread losses that are common to agriculture," Babcock said.

Unlike yield insurance or catastrophic insurance, revenue insurance actually guarantees farmers a certain income. As grain prices rose in recent years, farmers’ incomes have also climbed. That has put the government on the line as the backer for larger and larger incomes, even as critics point out that no other business has the luxury of guaranteed revenue protection.