U.S. crop insurance reformers fume as farmers sign up for 2014
At the turn of the century crop insurance was still a minor part of U.S. farm policy, averaging about $2 billion a year in the 1990s. By contrast, CBO estimates, even before the new farm bill government crop insurance costs will average $9 billion a year over the coming decade. The new law adds in another $3.3 billion a year to those costs, according to CBO data.
Critics say no one knows if such 'savings' will actually be realized since most farmers today opt for insurance that covers expected crop revenue, due to lower prices or crop losses.
"The new savings could turn out to be mythical. If prices decline from astronomical levels which USDA is projecting, these new subsidy programs could pay out far more than CBO estimates of their costs," Cox said.
Pat Westhoff of the Food and Agricultural Policy Research Institute at the University of Missouri said FAPRI now projects those additional costs at closer to $5 billion a year, not $3.3 billion, and comparable to the old direct payment program.
"The new crop insurance provisions, all else equal, will push up the costs of the crop insurance program," he said.
Reformers zero in on three costly aspects of the giant crop insurance scheme: subsidized premiums; billion-dollar government payments to insurers for "administrative and operational" costs; and the government's safety net as "reinsurer" of private insurers.
Bankers and Extension advisers say that the government's share of premium payments averages 60-65 percent for corn, soybean or wheat acreage. Next year, the government will pick up a higher percent of the premiums for up to 86 percent of harvest.
The new law "caps" annual administrative payments to the 19 private insurers at $1.3 billion - an average of $68 million each just for participating in the program. Even so, Graves said that was too low to meet insurers' costs.
The third government support derives from government as "reinsurer". Private insurers say they need the government because no one else will insure against crop risk based on the weather.
"If that's true, then the taxpayer would be better off taking on all the risk and not paying a huge fee to induce the private sector to take on some risk," Babcock said. "They say it because they don't want to lose that subsidized reinsurance. Call them on their bluff: OK, if it's too risky, we'll take it all on and save billions of dollars doing it."
But if crop insurance seems wasteful, it is also extraordinarily complex - and secretive.
"Crop insurance is hidden behind a really unprecedented veil of secrecy," Cox said. "There's actually statutory language in the federal Crop Insurance Act that prevents the government from revealing a lot of the details."
Critics point to a special clause tucked into the 2014 Farm Bill diluting the power of the U.S. Agriculture Secretary from trimming payments to crop insurance companies if the basic Standard Reinsurance Agreement is renegotiated.
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