Who wins, who loses if new limits put on crop insurance subsidies?

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, May 23, 2012 -For years, different types of eligibility and financial limits have been placed on the amount any one farmer or rancher can receive from federal farm programs. However, federal subsidies supporting crop insurance premiums, which have increased dramatically in the last couple of years in conjunction with higher crop prices and program growth, have been exempt from such restrictions.

That could change if Sens. Tom Coburn, R-Okla., is successful in offering an amendment during the Senate farm bill debate that mirrors a March 2012 Government Accountability Office (GAO) report he requested. Coburn has not yet specified what he might offer if the Senate Ag Committee's farm bill hits the floor in June, as expected. However, he asked GAO to look at the implications of applying a $40,000 limit ‑ the same level as currently applied to direct payments ‑ to the amount a farmer receives from premium subsidies.

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The nearly 900,000 farmers participating in the crop insurance program received premium subsidies of $4.7 billion in 2010 and $7.4 billion in 2011, according to GAO.

Analyzing RMA data with a potential $40,000 cap, GAO found “significant potential saving” for the federal government and taxpayers, in general ‑ up to $358 million for 2010 and $1 billion for 2011. And the watchdog agency concluded that the proposed limits would primarily affect a small percentage of the nation's largest farms, representing 3.9% of the farmers participating in the crop insurance program in 2011 and 32.6% of the premium subsidies.

For example, GAO pointed out that, in 2011, 53 farmers received more than $500,000 in premium subsidies.The largest recipient was a corporation that insured nursery crops across three counties in one state, for a total of about $2.2 million in premium subsidies. In addition, the administrative expense subsidies that the government spent on behalf of this corporation totaled about $816,000.

But Nebraska crop insurance agent and farmer Ruth Gerdes pointed out during a House Agriculture Subcommittee meeting last week that farmers of all sizes have the potential to be adversely impacted by a $40,000 limit. For example, she cited a Nebraska farm that would max out (under a potential $40,000 cap) at 568 acres, due to the combination of levels of risk.

If the same farm included all high-risk ground, it would max out at about 300 acres, Gerdes said.

For high-value specialty crops, a $40,000 limit could kick in on farms as small as 50 acres, according to a recent analysis by Dan Carothers, Personal Ag Management in Bakersfield, Calif. (See table below.)

In response to the GAO report, USDA officials pointed out that a $40,000 subsidy limit would have a “disproportionate impact” on states, like Arizona and Hawaii, with high-value specialty crops and states with higher risk crops such as North Dakota, South Carolina, Utah and Texas, but that virtually every state would be impacted on at least some crops. USDA also pointed to a multitude of problems associated with implementing any type of subsidy cap because an individual farming entity may have commodities with different final planting dates, premium billing dates, and insurance periods.

“Even knowing the full amount of premium for any single entity at a given point in time in order to administer a ‘subsidy' limit may prove impractical to track and administer in a fair and equitable manner,” USDA wrote, while noting that working with a producer who insures both crops and livestock would be especially problematic.

The agency also suggested that crop insurance subsidy limits could have a chilling effect on agricultural lenders' ability to make farm operating loans because “the amount and impact of a limit will never be known until the crop or commodity is planted and insured and premium determinations are made.”

Others point out that GAO's estimate of cost savings ignores the fact that, increased enrollment in crop insurance led to significant reductions in ad hoc disaster demands every year. From 2001-2007, Congress approved $7 billion in three separate ad hoc disaster funds for farmers.

Crop insurance advocates agree that any one proposal to cut a federal program can reduce spending. “The issue is what programs make the most sense to cut,” a crop insurance industry representative told Agri-Pulse. “It's not necessary to undermine crop insurance - what many U.S. farmers' describe as their most effective and popular risk management tool.



Original story printed in May 23, 2012 Agri-Pulse Newsletter.

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