Center for Rural Affairs

Federal farm support is undergoing a major shift from traditional farm programs to premium subsidies for federal crop insurance, with implications for family-size farms, conservation, and federal spending.

Federal crop insurance is a good and valuable tool for family farmers. It covers losses from both falling prices and natural disasters. On average, the government pays 60 percent of the premium. But there are problems with the details.

The emergence of crop insurance as the primary farm program effectively eliminates payment caps and conservation requirements. A direct attempt to repeal them in Congress would have prompted a public outcry. But elevation of subsidies for crop insurance has accomplished the same with little resistance.

Unlike traditional farm programs, recipients of premium subsidies for crop insurance need not practice soil conservation. Today, high market prices are sending a signal to maximize and intensify production. But that will come at a price to the soil and water if there are no conservation requirements on the primary farm program.

Furthermore, premium subsidies to the nation’s largest farms are unlimited. If one corporation farmed every acre in America, the government would pay over 60 percent of its crop insurance premium on every acre. Uncapped subsidies help mega farms bid land away from smaller and beginning farmers. They add to the federal deficit. And like the big bank bailout, they enable the biggest firms to socialize risk while privatizing profit.

The Government Accountability Office estimates the government could save $1 billion annually by capping premium subsidies at $40,000 and requiring large farms to pay the full premium above that. (See more on the GAO report here.)

Federal spending on those premium subsidies has doubled over five years and quadrupled over the decade to $7.4 billion in 2011, 1½ times the $4.7 billion cost of direct farm payments. Subsidies to insurers cost another $1.3 billion.

The proposed farm bill passed by the Senate Agriculture Committee would eliminate the direct payments currently made to farmers. It would enhance insurance for cotton and peanuts and also extend coverage to so called “shallow losses” on all crops. The committee bill would drive total crop insurance costs to over $9 billion annually, double the cost of the direct payments currently made to farmers.

Combined spending on farm program and premium subsidies under the proposed new farm bill is projected to be lower than continuing current law. But actual spending is projected to keep growing at roughly the rate of inflation.

Higher farm prices did bring a big drop in federal farm program spending in 2007. But since then overall spending on farm programs and premium subsidies has risen even as prices have risen. Why? Because it costs more to insure $6.00 corn than $3.00 corn. Thus, it costs the government more to pay 60 percent of the premium when farm prices are high.

Direct payments were much criticized for paying farmers every year, whether they needed it or not. But subsidies for crop insurance actually rise as need declines. Corn Belt land prices have doubled in five years, driven primarily by rising commodity prices. But rising crop insurance subsidies add fuel to the fire, imposing barriers to beginning farmers and expanding a bubble that may one day burst.

It is worth asking whether farmers would be better off to receive lower subsidies for crop insurance premiums in good years in return for better protection against a multi-year periods of low prices.

Crop insurance protects only against price declines over the crop year. And in light of federal deficits and today’s record farm profitability, it’s hard to justify record premium subsidies for crop insurance.

The Center for Rural Affairs has called on Congress to make several changes to crop insurance through the farm bill debate. We’ve urged Congress to require implementation of conservation plans by recipients of premium subsidies.

With the National Sustainable Agriculture Coalition, Izaak Walton League, and outspoken Nebraska farmers, we won one reform in the committee bill.

Those who break up native sod will receive no premium subsidies on those acres.

They will pay the full cost of crop insurance. That is critical because subsidized insurance covers the losses on marginal land when prices inevitably fall to more normal levels.

Senators John Thune (R-SD), Mike Johanns (R-NE), and Debbie Stabenow (D-MI) were instrumental in securing that reform.

The Center for Rural Affairs also joined with the Environmental Working Group, National Sustainable Agriculture Coalition, Oxfam America, and others in writing every member of the Senate to urge payment limitations on premium subsidies for crop insurance.

The groups wrote, “We urge you to place limits on the federal crop insurance premium subsidies granted to individual farmers, establish income limits for subsidy recipients, and require that recipients be actively engaged in farming. … We are a diverse group, including farm, rural, international, and environmental organizations. But we are united by the belief that America is best served by responsible policy that directs risk management assistance to farmers who need it and caps it at levels that do not subsidize the largest farms to drive out small, midsize, and beginning farmers, both here and abroad.”

It’s common sense, though sadly contrary to the positions of most agricultural organizations and the conventional “wisdom” in Washington.

But we need not despair. Democracy provides an old-fashioned cure – an engaged citizenry. It is up to each of us to say loudly and repeatedly that subsidies without limits or conservation requirements are wrong.

By Chuck Hassebrook, chuckh@cfra.org