Free crop insurance could save USDA $18.5 billion, environmental group says

2012-04-27T10:40:00Z Free crop insurance could save USDA $18.5 billion, environmental group says Iowa Farmer Today
April 27, 2012 10:40 am

WASHINGTON, D.C. — Giving farmers free crop insurance would save the USDA up to $18.5 billion over 10 years, a report from the Environmental Working Group (EWG) concludes.

The report also says that move also would provide farmers with a reliable safety net, according to a news release.

The EWG commissioned Bruce Babcock, an Iowa State University economics professor, to analyze the effects of offering farmers a free insurance policy covering 70 percent of average crop yield at 100 percent of the market price for the lost crop.

The report states:

  • If farmers were charged a small fee to cover administrative costs, taxpayers would save $10.4 billion over 10 years and cover every acre planted with corn, cotton, rice, soybeans and wheat in 2011.
  • Savings would grow to $18.5 billion over 10 years if only the acres insured in 2011 were covered by the new safety net.

“The reality that giving away free insurance would actually save money underscores how inefficient the current system is,” Babcock writes.

Under the current system, farmers pay only a small portion of the policy premiums; private insurers selling the policies pay less than half of the damage claims from crop-revenue losses.

Taxpayers pick up the rest, along with administrative costs and agents’ commissions. Consequently, the report says, one tax dollar goes to insurance companies and agents for every dollar sent to farmers to pay claims.

THE COST to taxpayers of the current crop insurance system has soared from $2.4 billion in 2001 to nearly $9 billion in 2011 as a result of high commodity prices and premium subsidies.

A new Government Accountability Office (GAO) report found one farm business that insured its cotton, tomatoes and wheat in two counties received $1.8 million in premium subsidies in 2010 while the average farmer received only $5,339. The GAO estimated taxpayers sent $309,000 to insurance companies to administer the policies for this one large business.

The Congressional Budget Office (CBO) predicts taxpayers will spend $90 billion over the next 10 years on the subsidized insurance program. The CBO predicts $66 billion will be spent on traditional farm subsidies.

Instead of trying to save money and fix the current insurance programs, some farm lobbyists and their allies in Congress have proposed layering an entirely new entitlement program, according to the EWG.

The organization says that would guarantee business income for the same large and profitable farm businesses that have been collecting the lion’s share of farm subsidies and add $30 billion to the $90 billion in taxes already spent to insure farm income.

Conservation, food, research and other farm-bill programs would have to be cut to fund the new mandate, the EWG says.

CRAIG COX, EWG senior vice president for agriculture and natural resources, said Babcock’s analysis shows “Congress could craft a farm bill that provides an effective farm safety net, protects food stamps, fully funds conservation programs and invests in healthy food while still meeting deficit-reduction targets.

“That is the farm bill that taxpayers and consumers want.”

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