| CHICAGO, March 14
CHICAGO, March 14 U.S. farmers this week
finalized their crop insurance plans for spring planting with
critics of the government-subsidized program saying insurers are
set up for a bonanza after passage of the new five-year farm
bill last month.
Farmers who sign up for crop insurance by March 15 won't in
fact enjoy the enhanced subsidies of the new federal law, which
go into effect with the 2015 crop year.
But grain farmers in 2014 will still see up to two-thirds of
their insurance premiums paid for by the government. Private
insurance companies will also still benefit from the government
as their "reinsurer," an arrangement which critics say limits
their losses while boosting underwriting gains.
With the new farm bill, the government's largesse gets even
bigger next year.
"I think taxpayers lost on that farm bill for sure. There
was lots of money that could have been saved to reduce the
deficit but they chose not to," said Bruce Babcock, an
agricultural economist at Iowa State University who has studied
crop insurance for more than a decade.
"The industry lobbies heavily," Babcock told Reuters. "It's
just rub my back, I'll rub yours."
A new farm bill was held up for more than a year by
wrangling over cuts in food stamps and subsidized programs for
the poor. Backers also touted cuts in direct payments to farmers
estimated by the Congressional Budget Office (CBO) at $40
billion over 10 years. But 80 percent of those savings - some
$33 billion, according to CBO data - reappear in the new farm
bill as "enhanced" crop insurance, reformers say.
"The crop insurance program survived essentially unscathed
in this farm bill," said Craig Cox of the Environmental Working
Group, which sees U.S. farm policies as wasteful to taxpayers.
"This was the first farm bill where there was a lot of attention
paid to trying to reform the crop insurance program. None of
those reforms made it into the final bill."
Crop insurers, on the other hand, praised the new law.
"For the taxpayer, it eliminated direct payments and reduced
some of the price support policies of the past in favor of
expanding crop insurance, which is purchased by farmers on an
individual basis," David Graves, president of the American Crop
Insurance Association, said in a written response to questions.
"For crop insurance companies, the farm bill underscored the
fact that crop insurance is the top risk management tool for
America's farmers and ranchers."
THREE KEY ISSUES
Critics say it is not the theory but the economics of crop
insurance they quarrel with.
At the turn of the century crop insurance was still a minor
part of U.S. farm policy, averaging about $2 billion a year in
the 1990s. By contrast, CBO estimates, even before the new farm
bill government crop insurance costs will average $9 billion a
year over the coming decade. The new law adds in another $3.3
billion a year to those costs, according to CBO data.
Critics say no one knows if such 'savings' will actually be
realized since most farmers today opt for insurance that covers
expected crop revenue, due to lower prices or crop losses.
"The new savings could turn out to be mythical. If prices
decline from astronomical levels which USDA is projecting, these
new subsidy programs could pay out far more than CBO estimates
of their costs," Cox said.
Pat Westhoff of the Food and Agricultural Policy Research
Institute at the University of Missouri said FAPRI now projects
those additional costs at closer to $5 billion a year, not $3.3
billion, and comparable to the old direct payment program.
"The new crop insurance provisions, all else equal, will
push up the costs of the crop insurance program," he said.
Reformers zero in on three costly aspects of the giant crop
insurance scheme: subsidized premiums; billion-dollar government
payments to insurers for "administrative and operational" costs;
and the government's safety net as "reinsurer" of private
Bankers and extension advisers say that the government's
share of premium payments averages 60-65 percent for corn,
soybean or wheat acreage. Next year, the government will pick up
a higher percent of the premiums for up to 86 percent of
The new law "caps" annual administrative payments to the 19
private insurers at $1.3 billion - an average of $68 million
each just for participating in the program. Even so, Graves said
that was too low to meet insurers' costs.
The third government support derives from government as
"reinsurer". Private insurers say they need the government
because no one else will insure against crop risk based on the
"If that's true, then the taxpayer would be better off
taking on all the risk and not paying a huge fee to induce the
private sector to take on some risk," Babcock said. "They say it
because they don't want to lose that subsidized reinsurance.
Call them on their bluff: OK, if it's too risky, we'll take it
all on and save billions of dollars doing it."
But if crop insurance seems wasteful, it is also
extraordinarily complex - and secretive.
"Crop insurance is hidden behind a really unprecedented veil
of secrecy," Cox said. "There's actually statutory language in
the federal Crop Insurance Act that prevents the government from
revealing a lot of the details."
Critics point to a special clause tucked into the 2014 Farm
Bill diluting the power of the U.S. Agriculture Secretary from
trimming payments to crop insurance companies if the basic
Standard Reinsurance Agreement is renegotiated.
(Reporting by Christine Stebbins; Editing by Stephen Powell)