WASHINGTON, April 19 – The Environmental Working Group says USDA could save as much as $18.5 billion over the next decade by giving farmers free crop insurance that would cover 70 percent of average yield at full market prices. “The reality that giving away free insurance would actually save money underscores how inefficient the current system is,” Iowa State’s Bruce Babcock, who developed the proposal, told a briefing organized by EWG yesterday afternoon.

Much of the savings would come from eliminating subsidies for coverage above 70 percent yield protection, which amounted to $6.8 billion last year, and doing away with subsidies for revenue insurance. Subsidized underwriting gains for crop insurance companies would be eliminated by having USDA’s Federal Crop Insurance Corporation pay claims directly. Commissions to insurance agents also would decline.

With a small administrative fee paid by farmers, free coverage for every acre planted with corn, cotton, rice, soybeans and wheat in 2011 would save $10.4 billion over 10 years, EWG says. Savings would grow to $18.5 billion over 10 years if the free coverage were provided only for the crop acreage that was insured last year, it claims.

The cost of the current crop insurance system has increased from $2.4 billion in 2001 to nearly $9 billion in 2011 as commodity prices have increased and, EWG says, because of “the generous premium subsidies that lead farmers to buy the most expensive insurance available. It cites the March Congressional Budget Office estimate that crop insurance spending will total $90 billion over the next decade, exceeding the $66 billion estimate for traditional commodity programs.

Because farmers receive only $1 in indemnity payments for every $2 in government costs, “billions of dollars a year are being spent that does not contribute to a farm safety net,” Babcock says. In six of the last 11 years, he said, the industry got more from the program than farmers. “Add all of these up over this time period (11 years) and taxpayers spent $50 billion – $25 billion to farmers, $25 billion to the companies,” he observes.

Barry Godwin, a North Carolina State agricultural economist, says the current program is hard to justify. “I don’t understand why we have a crop insurance program at all,” he says. “Why subsidize what producers would buy if it were available. “Private risk management mechanisms don't stand a chance against 60 percent subsidies. We are never going to have a private market if it has to compete against 60 percent subsidies.”

The proposal is at http://static.ewg.org/reports/2012/farm_bill/babcock_free_crop_insurance.pdf


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