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Changes to Farm Safety Net Programs Raise Concerns

Bill Clark/CQ Roll Call File Photo
Stabenow added a conservation provision to her chamber’s farm bill. She worked out a deal with farm groups, the insurance industry and conservationists, but the deal already has some farmers grumbling.

Senate Agriculture Chairwoman Debbie Stabenow, D-Mich., added the conservation compliance provision to her committee’s bill as the result of a deal reached among farm groups, the insurance industry and conservationists. That agreement, which required conservationists to lobby against any additional restrictions on crop insurance, was intended to head off any further amendments. That’s why farm groups and insurance companies signed off on it.

However, over Stabenow’s objections, the Senate also approved an amendment 59-33 that would slash premium subsidies for farmers with an adjusted gross income of more than $750,000. Farm groups oppose that income limit. Even though it’s relatively high now, once it’s part of the program, Congress could easily reduce it.

“You’ll come around the next go-around and drop that” to a lower level, and “then, after a while, it doesn’t make any sense,” said Art Barnaby, a Kansas State University economist who specializes in crop insurance.

That’s what worries Miller, who estimates that up to 1,000 policyholders in Iowa could be affected by the $750,000 AGI limit. “When you go down this path, now it’s $750,000, what is it next year? It can easily be lowered,” he said.

Barnaby said some large farms may simply organize their legal structures to get around the $750,000-per-person income limit.

He and other economists say the premium increase would have a bigger effect on some regions than on others. The Senate amendment would reduce the federal premium subsidy by 15 percentage points for farmers with an AGI of more than $750,000.

Many of those high-income farmers likely would reduce their coverage level, and some in the Plains and Southern states might skip on insurance altogether, or least drop down to a premium-free catastrophic policy that the U.S. Department of Agriculture offers, economists say. Those farmers already buy lower levels of coverage than farmers in Iowa and other Midwestern states where plentiful rainfall and good growing conditions keep premiums lower.

Farmers who now buy policies to guarantee, for example, 85 percent of their projected revenue may purchase 80 percent coverage instead. The government subsidizes just 38 percent of an 85 percent policy, but 48 percent of an 80 percent coverage. The higher subsidy could offset the premium increase. The effect isn’t as great at lower coverage levels, however. For example, the premium subsidy for 65 percent and 70 percent coverage is the same.

Even though rich farmers would be buying less coverage, especially at higher levels, that would not be enough to force the USDA to raise premiums for other growers to keep the program actuarially sound, the concern that’s been raised by farm groups, said Chad Hart, an economist at Iowa State University. “The rates are based off a 30-year average experience,” Hart said. “Having a few guys shift doesn’t affect that at all.”

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