As the agriculture industry prepares for harvest, a federal report released this month recommended the government slash the costly subsidies that help farmers insure their crops.
The U.S. crop insurance industry is administered by a select group of USDA approved agencies. Cargill, Monsanto and Archer Daniels Midland all have a history of running crop insurance ventures. For 2016 approved agencies, click here.
The Government Accountability Office found that a small 5-percent cut to premium subsidies on crop insurance – the program designed to protect farmers from losses caused by unfavorable market prices and disastrous weather conditions – would have saved more than $400 million in 2012.
A slightly larger cut would have saved billions more and helped alleviate the $17 trillion national debt.
Yet, Midwestern farmers say those cuts would hurt business. Instead of cuts, they urge decision makers to hold true to Farm Bill agreements. Earlier this year, Congress eliminated the billions-a-year direct payment subsidy to farmers. As a tradeoff, crop insurance programs were supposed to be strengthened.
Randy Kron, Vice President of the Indiana Farm Bureau, is one of those farmers.
“When we gave up the dollars that were getting in direct payments, we were fine with that,” said Kron, who farms white corn, soybean and wheat in southwestern Indiana. “Then, to turn around and a year later say, ‘Well, now we want to kind of reduce your safety net or pull that away, too,’ I’d say would be concerning.”
Last year, farmers received about $7.4 billion in premium subsidies.
That total helped offset about 60 cents of every dollar that a farmer paid on premiums.
Under the 2014 Farm Bill, the federal crop insurance program will cost slightly less than $90 billion throughout the next decade. Premium subsidies, according to the report, account for most of the program’s cost.
“Farming is what pays the bills and puts the food on the table for us,” said Kron, who has been farming for more than 30 years since he graduated from Purdue University. “I think we need to be careful when we’re dealing with the crop insurance part.”
The recommendation to lower premium subsidies would especially affect farmers throughout the Midwest. An analysis of crop insurance data shows that, since 2000, farmers in Iowa, Minnesota and Illinois have received more subsidies than nearly every other state. Only farmers in North Dakota and Texas have seen more subsidies during that time.
The federal crop insurance program is administered by the U.S. Department of Agriculture’s Risk Management Agency. Any change in premium subsidy levels would require Congressional approval.
Map: state premium subsidy sums from 2000 through 2013
Click on a state to see how much money the government has paid in premiums subsidies from 2000 through 2013. Zoom in and out with the bar on the left. The government has paid the most in premium subsidies to the states colored in red. Blue states have received the least in premium subsidies. Figures come from federal crop insurance data through the U.S. Department of Agriculture’s Risk Management Agency.
Against lobbying efforts, attempts to slash subsidies fail
The premium subsidies have long been subject of criticism.
In April of last year, democratic Rep. Ron Kind of Wisconsin introduced H.R. 1644, legislation aimed at imposing a limitation on the maximum amount of crop insurance premiums paid through the federal program.
Sen. Jeanne Shaheen, a democrat from New Hampshire, introduced a similar piece of legislation in the senate that month, as well.
A month later, democratic Rep. Jackie Speier of California introduced H.R. 2121, also known as the Crop Insurance Subsidy Transparency Act of 2013.
Representatives Paul Ryan (R-Wis.), Mike Thompson (D-Calif.), Andy Barr (R-Ky.) and John Duncan (R-Tenn.), along with senators Jeff Flake (R-Ariz.) and Pat Roberts (R-Kan.), have all recently been involved with legislation specifically dealing with crop insurance.
Besides those efforts, President Barack Obama included a suggestion to reduce premium subsidies in his administration’s 2013 budget proposal. In 2014, he included two legislative proposals aimed at reducing premium subsidies. When the president submitted his 2015 proposal earlier this year, he again designated premium subsidies as areas for possible cuts.
Nonetheless, legislation aimed at reducing or capping crop insurance subsidies on premiums has been largely unsuccessful.
Part of the reason many pieces of legislation fall short may have to do with the lobbying efforts that frequently block attempts to reduce subsidies.
A joint analysis between the Midwest Center for Investigative Reporting and Harvest Public Media found that the 2014 Farm Bill drew more than 600 companies that spent an estimated $500 million in total lobbying costs.
At least 80 groups spent more than $50 million in lobbying efforts that specifically included crop insurance.
Report claims reducing subsidies would have ‘minimal’ impact on farmers
While budget-focused critics have been quick to explore crop insurance subsidies as areas to mine for savings, representatives from state and national farm bureaus have argued subsidies help keep participation rates high. Without the generous subsidy rates, they say, more and more farmers would abandon crop insurance and put their livelihoods on the line.
“Only in the last few years have we gotten the subsidies up where people are comfortable,” said Mary Kay Thatcher, senior director of congressional relations with the American Farm Bureau Federation, during a June interview on crop insurance.
Data from the Risk Management Agency show that about 80 percent of the United States’ major crops are insured through the federal crop insurance program.
“I’ve used crop insurance since the first day I farmed,” said Kron, who began the harvest process for his farm earlier this week. “I believe it’s the right thing to do, but we need a large pool of people to help smooth that out across the whole country.”
The odds of farmers actually dropping out of the crop insurance program because of diminished premium subsidies is unlikely, according to the government report.
In fact, it suggests “the impact on farmers’ income appears to be minimal.”
In 2012, the average production cost for corn farmers was about $656 per acre. If Congress moved to slash premium subsidies by 5 percent, the average production cost would increase by less than $3 per acre.
“You say, ‘Okay, add $3 per acre – that’s not very much,’” Kron said. “Well, we farm 2,000 acres and that’s an extra $6,000 that we got to figure out how to come up with when we’re probably at a break-even situation.”
“In my view, that’s not minimal impact,” he added.
This graph shows which crops have received the most money in premium subsidies from 2000 through 2013. The crops that have received the most government subsidies include corn and soybean, two of the Midwest’s staple crops. Numbers are in billions of U.S. dollars. Figures come from federal crop insurance data through the U.S. Department of Agriculture’s Risk Management Agency.
Median farm household income on the rise
While harvest is only beginning, Kron said it looks like his yields will be “fairly good,” though prices for his crops appear to have dropped drastically.
“Hopefully, yields are good enough to make the bottom line have a little bit of black ink or be positive when we’re done at the end of the year,” he said.
In addition to its recommendation to cut premium subsidies, the government report highlighted farm income. During the last decade, median farm household income has outgrown the median U.S. household income, a trend suggesting farmers no longer need quite as much assistance when it comes to paying for premiums.
From 2003 through 2012, the median farm household income exceeded the median U.S. household income by an average of $7,205.
The report, “Considerations in Reducing Federal Premium Subsidies,” is just one of many crop-insurance reports published by the accountability office. Since the early 1980s, the watchdog arm of Congress has released at least 30 reports detailing concerns with the federal crop insurance program.
The U.S. Department of Agriculture declined to comment in the report.