Federal farm spending has been undergoing a major shift from traditional farm payments to crop-insurance subsidies.
Federal spending on premium subsidies has doubled over five years and quadrupled over the past decade to $7.4 billion in 2011, 1½ times the $4.7 billion cost of direct payments. In terms of farm bill spending, crop insurance has become the single-largest federal farm program.
Congress is crafting a new five-year farm bill. In April, the Senate Agriculture Committee approved its version of a new farm bill, the Agriculture Reform, Food and Jobs Act of 2012.
The Senate is debating the bill and will likely be voting on amendments and the final package next week.
Meanwhile, the House Agriculture Committee is about a month or so behind the Senate in its process to craft a new farm bill. During the past year, more so the past month, as Congress has worked on a new farm bill, crop insurance and payment limits have received a lot of attention and debate.
The farm bill, as approved by the Senate Agriculture Committee continues the trend of shifting from traditional farm payments to crop insurance — creating a variety of new subsidized insurance options while eliminating the old and often- maligned system of direct payments.
FEDERAL CROP insurance is a valuable tool for producers, but its emergence as the primary and most-expensive element of farm policy calls for a re-examination of its design.
As of recently, discussions surrounding crop insurance have centered on fiscal issues, asking the hard question of whether or not we can afford unlimited subsidies for crop-insurance premiums at the same time we are cutting vital funding for conservation agriculture and rural development.
Crop-insurance-premium subsidies are without limits. If one corporation farmed every acre in the United States, the government and taxpayers would pay more than 60 percent of its crop-insurance premium on every acre.
Direct payments have been criticized for subsidizing farms as deeply in good years as bad. Federal crop insurance goes further, providing bigger subsidies in years of lesser needs.
Federal subsidies actually increase as farm prices and income rise. It costs the federal government more to insure $6 corn than $3 corn.
Leaving crop-insurance subsidies uncapped, untargeted and without limits — as the Senate Agriculture committee version of the 2012 farm bill does — is not real reform.
Responding to some of these fiscal concerns, and the need for deficit reduction, Senate Majority Whip Dick Durbin, D-Ill., on May 8 signed a letter with Senator Tom Coburn, R-Okla., calling for real reform — a limit on insurance subsidies — and they have offered an amendment to the farm bill to do just that.
Durbin and Coburn should be applauded for taking this important stance but not just for fiscal reasons.
While the need to be fiscally conservative and address our country’s deficit is important, I applaud them for another reason — subsidy limits to crop-insurance-premium subsidies and limits to traditional farm programs have the added benefit of helping to alleviate some of the barriers small and beginning farmers face.
One of the biggest challenges for beginning farmers and ranchers — who are often those most interested in sustainable farming for local markets — and existing small farmers who are trying to meet the growing demand for farm-fresh local food is accessing capital and the ever-rising cost of land.
According to USDA studies, unlimited farm-program payments like crop-insurance-premium subsidies result in higher prices to purchase and rent land.
Uncapped subsidies also help mega-farms bid land away from small and beginning farmers.
Another recent USDA report explained how this tends to happen, “For some farmers, payments may provide opportunities to increase the size of their operation. A steady stream of income may allow recipients to gain access to higher levels of credit or may allow them to increase their rental or purchase bids for land.
THIS MAY provide opportunities for them to increase in size while driving out competition from smaller farms that don’t have access to the same levels of capital, which can impact the overall structure of agriculture.”
We need strong, loophole-free limits to crop-insurance subsidies and other farm-program subsidies.
Subsidy limits and caps are not only good fiscal policy.
They are good food policy, helping to limit current distortions to the overall structure of agriculture that make it very hard for small farms and beginning farmers to access affordable land.
Limits and caps would save billions in taxpayer dollars without compromising the overall system of crop insurance, while making it a little easier for small and beginning farmers.
A portion of those saving could then be invested in beginning farmers, local food systems and rural development, while a majority of the savings could be used to address the federal deficit.
Wes King is policy coordinator with the Illinois Stewardship Alliance in Springfield.