GAO recommends limits to crop insurance premiums
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WASHINGTON, April 12, 2012- In its report on the federal crop insurance program released today, the Government Accountability Office (GAO) recommended that in order to reduce crop insurance program costs, “Congress should consider limiting premium subsidies for individual farmers, reducing subsidies for all farmers, or both.”
GAO concluded from its analysis of USDA data that if a limit of $40,000 had been applied to individual farmers' crop insurance premium subsidies, the federal government would have saved up to $1 billion in crop insurance program costs in 2011.
GAO said it selected $40,000 as an example of a potential subsidy limit because that is the limit for direct payments, which provide fixed annual payments to farmers based on a farm's crop production history.
“Had such a limit been applied in 2011, it would have affected up to 3.9 percent of all participating farmers, who accounted for about one-third of all premium subsidies and were primarily associated with large farms,” stated the GAO.
Senator Tom Coburn (R-Okla.), who requested the report, applauded the GAO for providing Congress a way to save taxpayer dollars through their recommendations.
“High premium subsidies have hurt small and beginning farmers because the subsidies themselves have distorted the market,” he said. “For instance, high subsidies have artificially increased the value of land and have created other barriers to entry and expansion.”
However, in recent months, several producers from across the country testified at House Agriculture Committee field hearings and Senate Agriculture Committee hearings requesting that crop insurance not be reduced any further. The federal crop insurance program, administered by USDA's Risk Management Agency, shouldered $12 billion in funding reductions since 2008.
"Over and over again we have heard from our farmers about the importance of crop insurance because it forms the backbone of the safety net,” said Chairman of the House Agriculture Committee Rep. Frank Lucas (R-Okla.) today in response to the GAO report. “This proposal would discourage participation in the crop insurance program and as a result endanger its integrity.”
National Crop Insurance Services Inc. (NCIS) fears the GAO measures would “adversely affect many of America's full-time farmers” as well “prove particularly punishing to beginning and young farmers” who struggle to find operating loans without insurance coverage. The organization emphasized the public-private partnership designed to deliver crop insurance, which was done in a way to limit taxpayer risk exposure by shifting much of it to private business.
“Any proposal to limit insurance protection or discourage farmer participation only shifts risk back to taxpayers and consumers and makes it more likely that farms would be unable to pick up the pieces in the aftermath of an unpredictable weather event or market collapse,” stated NCIS.
According to the GAO report, USDA did not agree that Congress should consider limiting premium subsidies, but the department did agree with GAO's recommendation to encourage the completion of Farm Service Agency (FSA) field inspections before paying claims that are filed after inspections show a crop is in good condition.
For the full GAO report: http://www.gao.gov/assets/590/589305.pdf
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