Federal Crop Insurance

In light of one of the worst droughts the US has experienced in the last 50 years, US taxpayers could end up paying an estimated $16 billion in crop insurance costs.

Federal Crop Insurance, what is it? Unlike other forms of insurance, the Federal Crop Insurance scheme not only protects farmers from revenue losses due to lower than average yields but it also covers farmers who do not receive their expected revenue due to fluctuations in the marketplace. It is estimated that over 80 percent of major field crops in the US, such as wheat, corn and soybeans, are covered by the Federal Crop Insurance program.  Insurance policies are sold by 15 private insurance companies, all of which are backed by the government against any losses. Thus, the government (a.k.a. the taxpayer) pays for around 62 percent of farmers’ insurance premiums and also pays for any losses that the 15 private insurers may incur if farmers’ claims exceed the amount they’ve collected in premiums.  It’s a double-whammy to the taxpayer’s pocket.

What about livestock producers?

Because of the drought that ravaged last year’s feed crops, livestock producers have been hit hard by the rising cost of feed.  Not only has the meat and dairy industry become extremely reliant on grains and soybeans to fatten their animals faster (and previously, cheaper) but even grass-fed farmers in drought stricken areas have been forced to buy expensive feed when there wasn’t enough pasture to graze. Livestock producers do not have federally subsidized insurance like crop farmers, but that is not to say that the government doesn’t shell out millions of dollars to relieve them in the face of declining crop yields and higher prices for feed. President Obama announced in August of last year that the government would be purchasing $170 million of meat and poultry to help livestock producers who were having a hard time staying in the market.  This sizeable purchase came on top of the $30 million given out the previous week for technical and financial assistance for livestock producers and a $383 million package of loans and grants for them—the funds for which were taken out conservation programs.

Expense at a time of national budget crisis

Last year, the Environmental Working Group (EWG) released a report summarizing over a million government records obtained through the Freedom of Information Act.  The report  found that in 2011 over 10,000 individual farming operations received federally subsidized crop insurance premiums from $100,000-$1 million each.  In total, 26 farming operations received subsidies of $1 million, distributed primarily to corn, potato, soybean, fresh market tomatoes, wheat and cotton producers. In contrast, the bottom 80 percent of federally insured farming operations received subsidies just over $5,000. An even more disturbing fact is that the names of these farming operations who are receiving  our tax dollars were omitted from the documents made available to the EWG.  This means that we are giving billions of dollars in subsidies, and we aren’t even afforded the right to know who is receiving them. Federal Crop Insurance subsidy information for 2012 has yet to be released. During one of the hardest times for agricultural producers, the USDA stated in a report on the drought that, “All major sources of farm income are expected to rise in 2012, with the largest gains expected for farm-related income due to both Federal and private insurance indemnity payments.” [callout]Despite the fact that the country is trillions of dollars in debt, both House and Senate versions of the Farm Bill would expand crop insurance subsidies to make up for a downsizing of the government’s direct payment program.  The program gives out per-acre subsidies to certain farmers, regardless of their crop yields or revenue.  Under these loose guidelines, farmers have been known to receive lump-sum payments even if they did not grow a crop that year.[/callout]

Charge it to the taxpayer and the environment

Advocates for reducing Federal Crop Insurance subsidies argue that farmers and insurance companies should assume more of the hazards of farming, not the taxpayer.  These crop insurance subsidies which guarantee a farmer will receive his or her base profits have prompted some farmers to take undue risks when it comes to their farming practicesincluding damaging the environment.  Because they do not assume the entire risk and this insurance is not attached to any conservation requirements, these farmers have extended their fields into ecologically sensitive areas. A separate EWG report found that Federal Crop Insurance and high crop prices contributed to the conversion of more than 23 million acres of important grasslands and wetlands into farmland—primarily that of corn, soybeans and winter wheat.  Of the counties which experienced this loss, the EWG found that those which received the highest  federal crop insurance subsidies were also those which had converted the most acres of ecologically sensitive land. This insurance subsidy means that the real cost of farming is externalized and so it is not the farmer who pays for their mistakes at the end of the day, its everyone else. Read more on what the US drought cost you.