Conservatives call for big cut in U.S. crop insurance subsidy
* Senate, House bills would save $40 bln over 10 years
* Returning premium subsidy to late 1990 levels is goal
* Government now pays 62 cents of $1 of crop premiums
WASHINGTON, March 5 (Reuters) - A coalition of fiscal conservatives on Tuesday called for a steep cut in federal subsidies for crop insurance, setting up a clash with U.S. farm groups that see the program as their top priority in a new farm bill.
Growers have collected more than $15 billion in payments for 2012 losses resulting from the worst U.S. drought since the 1930s. Of that total, the cost to the government could be $10 billion.
Crop insurance is the biggest part of the farm safety net, thanks to high commodity prices and the popularity of "revenue" policies that shield farmers from low prices and poor yields. The program is expected to cost $85 billion over the next decade.
Senator Jeff Flake of Arizona and Representative John Duncan of Tennessee, both Republicans, filed bills to save $40 billion by slashing the federal subsidy for buying crop insurance. The government now pays 62 cents of each $1 of the premium now.
The Flake and Duncan bills would return the subsidy to the levels of the late 1990s, when it was around 38 percent.
"It's a program that loses money for the taxpayers whichever way it goes," Flake told reporters. Duncan said the biggest beneficiaries were insurance companies and big farmers.
The lawmakers were backed by 17 conservative groups, including Grover Norquist's Americans for Tax Reform, Club for Growth, National Taxpayers Union, Taxpayers for Common Sense and FreedomWorks.
In a letter, the groups said smaller crop insurance subsidies "would provide a modest down payment on desperately needed fundamental reforms to U.S. agricultural policy."
Many farm groups say crop insurance is essential and cuts would damage its panoramic coverage of U.S. agriculture.
The farm bills written in 2012 in the Senate and House expanded the scope of the program but died at the end of 2012. Farm state lawmakers say they will try again this year to pass a farm bill.
Groups representing corn and soybean growers, which met to discuss policy options last weekend, said insurance should retain a central role in U.S. farm supports.
"No question, crop insurance is the No. 1 priority," said Sam Willett of the National Corn Growers Association. "I think there is a consensus out there."
Delegates to an American Soybean Association meeting adopted a resolution saying a stronger crop insurance program may be needed to offset the effect of budget austerity on traditional farm subsidies.
House Agriculture Committee Chairman Frank Lucas, an Oklahoma Republican, described crop insurance on Tuesday as "the backbone of the safety net."
Premium subsidies were increased in 2000 as an inducement for larger enrollment and to buy higher levels of coverage, as a way to avoid costly disaster relief bills. (Reporting By Charles Abbott; Editing by Steve Orlofsky)