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Thu May 30, 2013
Congress Poised To Make Crop Insurance Subsidies More Generous
Originally published on Thu May 30, 2013 5:40 pm
For decades, farmers have been getting checks from the federal government as part of a safety net to help protect against, for instance, the financial ruin of drought or floods.
So last year when a big drought hit the Midwest, who paid for it? You did.
As my colleague Dan Charles has reported, payouts from crop insurance policies added up to about $16 billion, and much of it was paid by taxpayers.
And as Congress debates a new farm bill that will authorize future spending on crop insurance subsidies, it seems that the programs are poised to become more generous.
Lawmakers are considering an additional program that would help farmers recoup even more of their losses than currently is covered by crop insurance.
You see, the way crop insurance works, farmers are eligible for payouts not only when their crops fail due to drought or flood, but also when the prices of their crops drop.
In essence, farmers with crop insurance are able to lock in a guaranteed price. Sometimes, like last summer, they're able to get the best of all worlds: High prices for their crops, together with a hefty insurance payout to compensate them for a small harvest.
Since we, the taxpayers, pay about 60 percent of crop insurance premiums, farmers can get these generous insurance policies on the cheap.
Farm state Sen. Pat Roberts, a Kansas Republican, is among those who think the program works. He summed up his support recently on the Senate floor when he said, "Crop insurance allows producers a way to manage risk, so they can provide a stable and secure food supply and pass their operations onto their children."
But not everyone is so convinced that this is a success story.
Critics say crop insurance has reduced the risk of farming so much that farmers are now incentivized to farm on marginal lands, such as wetlands or lands with less than optimal soil.
"When the government is guaranteeing you [a farmer] 85 percent of your income, it suddenly makes a whole lot more sense to farm in places that might flood or have low soil moisture, which might not have been practical to farm if you simply had your own skin in the game," says Scott Faber of the Environmental Working Group.
He also says the system helps the rich get richer. About a third of the subsidies go to the largest 4 percent of farm operators.
In its farm subsidy database, EWG finds the largest recipients of crop insurance support receive more than $1 million a year in subsidies.
And groups such as Taxpayers for Common Sense argue that the farm subsidies are overly generous — at a time when farmers are doing quite well.
"When some of the worst conditions in the field produce one of the best years for the bottom line [of farmers], it should teach us a simple lesson — that agriculture safety net is too generous," says a Weekly Wastebasket newsletter from the group.
Land prices are near record highs and crop prices are high, too — which means farmers are doing quite well.
In fact, according to this USDA report, the median household income for farmers operating commercial farms in 2011 was $84,649 (from farming activities), and total household income (including nonfarm income as well) was $127,009. The median U.S. income is about $50,000.
So, critics ask, should we be subsidizing farmers to the tune of billions of dollars a year at a time when the deficit is forcing cuts to federal spending, including cuts to food stamps?
A version of the farm bill recently passed by the Senate cuts $4 billion from the food stamp program over the next 10 years, and there seems to be little support for scaling back these cuts. An amendment from Sen. Kirsten Gillibrand, D-NY, to eliminate this cut failed. The House Committee on Agriculture is proposing even more draconian cuts to food stamps: More than a billion dollars each year.
MELISSA BLOCK, HOST:
This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.
ROBERT SIEGEL, HOST:
And I'm Robert Siegel.
We turn now to Farm and Food Politics and what it has to do with you, your pocketbook and the food on your table. It's a hot topic on Capitol Hill right now; Congress is debating a bill that will decide how much government support farmers will get in coming years. Farmers have been getting checks from the government for decades. And critics say it's time for the taxpayers' generosity to be scaled back, especially since farmers have been doing quite well in recent years.
NPR's Allison Aubrey, who covers food and nutrition, and Dan Charles, who covers food production and farming, are here to discuss this. Good to see you both.
ALLISON AUBREY, BYLINE: Hi there, Robert.
DAN CHARLES, BYLINE: Nice to be here.
SIEGEL: And, Dan, let's start with you. How does this all work? How are farmers subsidized these days?
CHARLES: OK, there have been lots of different programs over the year. The overall level of subsidies bounces around a lot but, generally, in recent years, it's been declining. Over the past 15 years, it's come down by, say, about a third. What's left is something called crop insurance. And this part has grown. It's now the biggest farm subsidy by far. In a normal year, it costs taxpayers about $6 billion, say. Last year, because of the Midwestern drought, the cost was $13 billion.
Most of this particular subsidy goes to the big grain crops - corn, soybeans, wheat, cotton. But now, lots of other farmers are taking advantage of it, too; fruit and vegetable farmers, organic farmers, tobacco farmers.
Pat Roberts, Republican from Kansas, gave a passionate defense of this program on the Senate floor recently.
SENATOR PAT ROBERTS: Simply, crop insurance allows producers a way to manage risk so they can continue to provide a stable and secure food supply, and pass their operations on to their children. And if that isn't a success story of the partnership between government, private industry and America's farmers, I really don't know what is.
SIEGEL: Sounds reasonable. It's a floor - we don't want to see farmers go out of business because of one disastrous when there's a drought or a flood.
AUBREY: Well, yes and no, but not everybody is convinced that this is the perfect partnership between government and farmers because these insurance policies don't work the way traditional insurance works. It's not like your car insurance or your home insurance. With crop insurance, a farmer buys a policy but doesn't have to pay the premium. It turns out we do. Taxpayers pick up about 60 percent of the cost.
In essence, we're subsidizing the cost of buying insurance. And we, the taxpayer, also pick up a lot of the administrative and operating fees. On top of this, farmers don't just get a pay-out if they lose their crop due bad weather, they also can make claims when prices of their crops dip. So essentially, by insuring against significant price drops, farmers can lock in a guaranteed price.
And critics say, this in essence takes away much of the risk of farming.
SIEGEL: Well, has this actually happened, though? Have farmers actually gotten payouts for losses of the kind that Allison just described, Dan?
CHARLES: Yeah. Actually, last year was a really good example of this. You'll remember there was a big drought across the Midwest. The corn and soybean harvest went way down. As a result, prices went way up. And here's the thing. Corn and soybean farmers got to pocket the extra income by selling their crop at those high prices. And they also got big insurance payouts because of the low yield.
Many of them made more money in that drought year than they would have made in a year with normal rainfall. And a good chunk of that extra income came from the federal government, through crop insurance.
A lot of people say that is not what the program should be doing, it's a waste of taxpayer money.
SIEGEL: Allison, other ramifications of this?
AUBREY: Well, one criticism is that with so much of a price guarantee, farmers take risks they normally wouldn't take if it were purely a market-driven economy.
I spoke to Scott Faber of the Environmental Working Group, an organization that is pushing for reform of crop insurance.
SCOTT FABER: When the government is guaranteeing you 85 percent of your income, it suddenly makes a whole lot more sense to farm in places that might flood or might have low soil moisture, might not have been practical to farm if you simply had your own skin in the game.
AUBREY: So basically he's saying farming in wetland area or other environmentally sensitive lands, that crop insurance as structured now, encourages this.
SIEGEL: So what's happening now? Are members of Congress listening to critics or listening to the farmers? Who seems to be gaining?
CHARLES: Well, there are critics who say if the government is in this business - and probably there's a good reason for there to be crop insurance - it should just be a bare bones kind of insurance that would keep farmers from going under in a bad year. Maybe make up, say, 70 percent of their income.
AUBREY: But actually, what's happening now is that crop insurance is about to get bigger. Both the House and the Senate Agriculture Committees are adding a sort of whole new program on top of crop insurance to make these insurance programs even more generous. And at the same time, Food Stamps and other nutrition assistance programs are being cut significantly.
So the question critics such as Taxpayers for Common Sense are asking is this, at a time that the farm economy is quite strong, land prices are near record high, crop prices are strong: Does it make sense to subsidize farmers to this extent, especially the biggest, wealthiest players in agribusiness?
SIEGEL: That's NPR's Allison Aubrey and Dan Charles. Thanks to both of you.
AUBREY: Thank you.
CHARLES: Thank you. Transcript provided by NPR, Copyright NPR.