Crop Insurance Top Priority01/26/2018
The sun is steadily setting on the Agricultural Act of 2014. The “farm bill”, as the act is commonly called, is a massive omnibus bill containing an equally massive amount of spending. The Congressional Budget Office in 2014 estimated that direct spending stemming from the myriad programs would run $956 billion.
With that kind of money on the table, negotiations advance by degrees practically every day between now and Sept. 30 when most provisions of the 2014 bill expire. Nutritional services like the Supplemental Nutrition Assistance Program take up the vast majority of farm bill spending, but crop insurance has come under greater scrutiny lately.
Last May President Donald Trump tried to make good on his campaign promise to slash budgets, proposing a 36 percent cut to federally subsidized crop insurance. After several months of backlash the president reigned in his efforts, telling a group of Farm Bureau members on Jan. 8 that crop insurance would be included in the budget.
The Risk Management Agency at the US Department of Agriculture says that direct costs for the Federal Crop Insurance Program have totaled $72.8 billion since 2007, but the annual cost has fallen for six consecutive years.
According to the Congressional Budget Office, the federal government subsidizes on average 60 percent of a farmer’s premiums. Under various programs, crop insurance policies can be a hedge against price declines regardless of actual market prices.
Proponents of crop insurance reform say that premium subsidies under the current farm bill allow farmers to conduct business practically risk-free. Some crop insurance policies are revenue policies that protect farm businesses from declines in anticipated revenue, rather than actual crop damage due to weather or disease. An element known as Harvest Price Option can retroactively increase revenue guarantees if prices are higher during harvest than were expected at planting.
Kansas 1st District US Congressman Roger Marshall doesn’t see crop insurance as a real profit center for farmers. He views it as surety for a farmer to continue his business, as well as providing some certainty for the industry as a whole.
“Farmers don’t make money on crop insurance. What it allows them to do is plant next year’s crop,” Marshall said. “Crop insurance doesn’t just protect the farmer, it’s protecting the downtown community bank… it’s protecting the co-op in Dodge City and the people who truck wheat and corn to different ports. It’s vital to the entire ag industry, not just the farmer.”
Josh Sewell, senior policy analyst at Taxpayers for Common Sense, said his group definitely supports a safety net for farmers, but he would like to see more risk-based policies versus revenue guarantees.
Sewell perceives many of the crop insurance policies as simply enhancing revenue artificially.
“The notion of subsidizing revenue makes a lot of conservatives antsy,” he said. “If you’re going to have that, it needs to be pared down to reasonable levels. Taxpayers are bearing a large cost for guaranteeing producers a ticket toward financial security.”
Greg Ruehle, president and CEO of Servi-Tech, said even with revenue-based policies, farmers are typically able to only cover 65-80 percent of their expected income.
“I’m not sure how someone could view that as a bad thing,” Ruehle said, “when we do that in business regularly. We have ways of offsetting risk in business. Most of these guys are just insuring against a calamity. The cost of insurance to maximize my revenue per acre would be so high that they’d never be able to buy enough.
“It’s not a big giveaway. Given the risks associated in producing that crop, it’s just not.”
The USDA says that between 2004 and 2014, premium subsidies amounted to $53.7 million and claims paid exceeded premiums and other income in all but four of those years. The CBO says that overall expenditures for crop insurance are expected to be $21 billion less than estimates from the 2014 bill.
“There’s no better read on that marketplace changing than the fact that there are fewer and fewer underwriters in the space today,” he said.
The USDA released its 2018 Farm Bill and Legislative principles Wednesday. The first paragraph states that the USDA supports legislation that “provides a farm safety net that helps American farmers weather times of economic stress without distorting markets or increasing shallow loss payments.”
Marshall has said that getting the farm bill passed is his first priority. During his town hall meetings, Marshall said he has heard from thousands of farmers and ag producers declaring that crop insurance is “the backbone of every farm bill.”
Issues arise when trying to assess the cost-effectiveness of crop insurance and the ultimate value of what it provides. The national debt and ever-increasing federal budgets are the bottom-line concern for Sewell and his group.
“We want to make sure that we’re only spending money on programs that we absolutely have to,” Sewell said. “We support getting (crop insurance) in line with every other safety net program that exists with means testing and payment limits to target the people who need it the most.”
According to Marshall, providing crop insurance costs $27 per American and “guarantees us the safest, most reliable food source in the world.”
“Farming is such a big part of our domestic economy and our foreign trade balance,” he said. “For the stability and vitality of a community like Dodge City is closely tied to production agriculture, we can’t afford to throw all the risk-protection tools out the window.”
Marshall feels that crop insurance is the top priority in the farm bill for both the president and the ag committee. While debate over specifics obviously goes on, Marshall said he has not heard complaints or attacks against crop insurance from other members of Congress.
“I think they understand it’s the holy grail, it’s the backbone of agriculture,” Marshall said. “I think the last thing they want to be seen as is people trying to shoot down the American farmer.”
Source: Scott Edger, Dodge City Daily Globe