A proposed supplemental crop insurance program included in the pending farm bills in both the House and Senate would have boosted windfall profits for farm businesses and increased federally subsidized insurance payouts by $6.8 billion in 2012, according to a new report released Thursday by Environmental Working Group (EWG).
The report, “Pumped Up: How Supplemental Insurance Could Bulk Up Farm Subsidies,” by agricultural economist Bruce Babcock, analyzes how the insurance plan, known as the Supplemental Coverage Option (SCO), would have performed in 2012 if it had been in place during that drought-plagued year.
The proposal’s supporters on Capitol Hill hail SCO as reform because it would replace the widely discredited direct payments program and, they say, trigger payouts only when a farmer has an actual loss. EWG disagrees and intends to sway members of Congress into changing or removing the current safety-net program.
Babcock’s analysis, however, shows that adding SCO on top of subsidized crop insurance policies would have actually resulted in payouts to policyholders that are far larger than direct payments—even if they had suffered little or no financial loss, according to EWG.
“At a time when Congress is desperately trying to cut the federal deficit, it does not make sense to start a new program that does not solve any actual problem facing agriculture, does not improve the efficiency of government programs and is so prone to delivering windfall gains,” Babcock wrote.
Focusing on the example of a typical farmer in Champaign County, Ill., Babcock claims that the combination of revenue protection (the most heavily subsidized insurance coverage) and SCO would have generated payouts ranging from $172,000 to $322,000 to farm businesses that suffered little if any revenue loss because of the drought. Moreover, he contends that the windfall gains for farmers would have added another $6.8 billion in total crop insurance payouts—on top of the $17 billion in payouts actually made in 2012. Most of the payouts would have been at taxpayers’ expense.
“SCO, it turns out, would be just another way to send cash to farm businesses regardless of need but with better optics,” said Craig Cox, EWG’s senior vice president of agriculture and natural resources. “Swapping this program for direct payments is an expensive and cynical game of bait and switch masquerading as reform.”
SCO is designed to cover the so-called “shallow losses” that are smaller than the deductibles on a grower’s existing crop insurance policy. But Babcock and EWG contends there is no economic justification—and none has been claimed—for having taxpayers take on even more of the risks of crop production.
Babcock argues that a simple county-based insurance policy would put a solid floor under growers’ revenue in areas hard hit by drought or other circumstances beyond their control and ensure that payouts only go to farmers who actually need the help. It would also encourage development of a private insurance industry that would offer risk protection products that farmers would be willing and able to buy without federal subsidies.
“That would be the kind of reform that farmers need and taxpayers deserve,” said Cox. “Ending direct payments and re-engineering crop insurance would save billions of dollars; savings that could be used for deficit reduction and investments in conservation, healthy food, research and other priorities that would provide far greater benefits to all of agriculture—and to taxpayers.”