When Congress overhauled the federal crop insurance system 13 years ago, lawmakers hoped it would reduce the need for rescuing farmers through multibillion-dollar bailouts.
The overhaul, which offered steep subsidies to reduce premiums on high-value insurance policies, succeeded beyond lawmakers’ dreams. Despite last year’s devastating drought, one of the worst since the Dust Bowl, farmers were so heavily insured that Congress’ not passing a farm bill was met with a collective shrug in the countryside.
Crop insurance is now on the verge of becoming the primary means, and in some cases the exclusive means, of supporting farm income, supplanting traditional subsidies.
But farmers and their allies are worried congressional budget cutters will go after the program in their search for ways to cut the deficit. “There’s a big target on crop insurance now,” said former Texas Rep. Charles W. Stenholm, who was the ranking Democrat on the House Agriculture Committee in 2000.
President Barack Obama and House Budget Chairman Paul D. Ryan, R-Wis., both proposed last year to slash spending on crop insurance. The House Agriculture Committee, in a Feb. 26 letter to Ryan laying out the panel’s budget priorities this year, said the insurance system already had been cut enough in recent years and “must not be weakened.”
“Last year’s drought exemplified exactly how important crop insurance is to producers and the rural economy,” the letter said. “With almost half of the country experiencing severe to exceptional drought, there were no calls for ad hoc disaster assistance as there have been in the past, because of the protection crop insurance provides.”
The program’s cost rose to $14.1 billion in 2012, up from $2.2 billion in 2000, according to the Congressional Research Service.
Farmers bought policies worth nearly $117 billion last year on 282 million acres. The government now pays 55 percent of the premium for a popular type of policy that insures 75 percent of a crop’s value. Before 2000, taxpayers subsidized 24 percent of that policy’s cost. Total premium subsidies have risen from $1.3 billion in 2000 to $7.1 billion last year.
The program has a broad base of political support other than from farmers: the insurance agents, who are allowed to keep a share of the premiums; the 17 companies that sell the policies and keep the profits when premiums exceed losses; and rural bankers, who reduce their risk of farm loans by insisting that borrowers buy the policies.
“I would say 90 percent, maybe as much as 95 percent, of our borrowers have some type of crop insurance. You can’t go out there and borrow half a million, three-quarter million dollars and not cover yourself,” said Kreg D. Denton, senior vice president of First Community Bank in western Kentucky. He’s concerned that if farmers are required to pay more for insurance, some will control costs by buying less coverage, putting them at greater financial risk.
May 23, 2013, 7:13 p.m.
May 23, 2013, 11:42 a.m.
May 22, 2013, 12:30 p.m.