by Chris Clayton, DTN Ag Policy Editor
OMAHA (DTN) — The crop insurance industry could benefit from “common sense structural changes,” according to a pair of senators, who cite a recent government study in calling on the Senate Agriculture Committee to further investigate reducing premium subsidies to farmers.
In a bi-partisan letter, Sens. Tom Coburn, R-Okla., and Dick Durbin, D-Ill., wrote earlier this week to Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., and ranking member Pat Roberts, R-Kan., asking them examine ways to find taxpayer savings in crop insurance. Coburn and Durbin cited a Government Accountability Office report last month requested by Coburn that highlighted the growing costs of the crop insurance program.
“As commodity prices have increased significantly in recent years, program costs also are growing at an alarming rate,” Coburn and Durbin wrote to the Ag Committee leaders.
The letter comes as the Senate Agriculture Committee leaders are seeking floor time this month to debate a new farm bill that avoids cuts to crop insurance.
In the 2008 farm bill, lawmakers chopped $3 billion from the industry’s projected growth over 10 years and also created a timing shift that will delay up to $3 billion in payments. A new contract negotiated between the industry and USDA in 2010 also cut another $6 billion in projected spending over 10 years from insurers. Instead of insurance cuts, the Senate farm bill expands insurance with a new program for cotton and add-ons for other, smaller crops. Those insurance programs are meant to help offset cuts to commodity programs.
Coburn and Durbin noted taxpayers paid $7.4 billion in premium subsidies in 2011, and premium subsidies are projected to grow.
“Congress should explore potential adjustments that would provide a leaner, more efficient program that provides needed support in a cost-efficient manner,” the senators wrote.
The Government Accountability Office, Congress’ investigative arm on examining government spending, stated in its report a $40,000 cap on premium subsidies would have saved taxpayers $1 billion last year and as much as $358 million in 2010. By the same token, those taxpayer savings would have cost farmers comparable amounts, assuming they would have paid to keep the same level of insurance protection.
Coburn and Durbin pointed out that taxpayers paid an average of 62{fd15d42d1b024b97d6d50958be27cc8145b6addb99e015780abccf2984117bb0} of the premium subsidy in 2011. Earlier this year, the president’s budget called for lowering that to a 50{fd15d42d1b024b97d6d50958be27cc8145b6addb99e015780abccf2984117bb0} level.
“Based on the GAO’s findings, we believe further investigation into the efficacy of reducing premium subsidies is warranted,” the senators wrote.
A spokesman for the Senate Agriculture Committee did not respond to an inquiry seeking comment on Coburn and Durbin’s letter.
In a statement to DTN, Tom Zacharias, president of National Crop Insurance Services, said crop insurance is popular and proven time and time again to be the most efficient way to deliver assistance to farmers quickly after a disaster to help them recover. Further, the public-private partnership was specifically designed over the past three decades to limit taxpayer risk exposure by shifting it to private business.
Zacharias said any proposal to limit insurance protection or discourage farmer participation only shifts risk back to taxpayers and makes it more likely that farmers would be unable to pick up the pieces in the aftermath of an unpredictable weather event or market collapse.
Moreover, the plan recently outlined by the GAO would adversely affect many of America’s full-time farmers, Zacharias said. He cited University of Illinois agricultural economist Gary Schnitkey, who recently looked at the $40,000 cap in terms of how it would have worked in recent years.
Because of the fact that both the insurable value of crop revenue and premiums go up with high commodity prices, in years where prices are high, farmers will hit the premium cap with fewer acres farmed. For example, a farm in Illinois with 1,682 insured acres would have hit the limit in 2011. In 2010 it would have taken 2,710 acres. A payment limit could have differential impacts on farms, according to Schnitkey. Factors including the amount of specific risk present on a given farm and the amount of acres that are rented for cash could greatly affect when a farm hits the cap.
Zacharias added that farmers are in the fields planting this year’s crop and there were no calls for disaster assistance following the 2011 growing season — arguably the worst on record from a weather standpoint — which shows how well the current system is working for farmers and taxpayers. Along with that, farmers said repeatedly in congressional hearings that maintaining a strong crop insurance system is the top policy priority.
Coburn and Durbin stated that a Congressional Budget Office report earlier this year stated a proposed across-the-board reduction in premium subsidies would not significantly reduce participation in crop insurance.
“Based on the GAO’s findings, it is our belief that the crop insurance program can benefit from some common sense structural changes and save significant taxpayer dollars while maintaining the necessary safety net,” Coburn and Durbin concluded.
The full GAO report can be found at http://www.gao.gov/…
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Posted with DTN Permission by Haylie Shipp
