A symbolic vote on crop insurance reform

The House is likely to vote on its rule for going to conference on the farm and nutrition bills tomorrow.  A key point of debate will be the House conferees' stance on a crop insurance reform amendment put forward by Sens. Coburn and Durbin. House leadership may issue a nonbinding motion to instruct (MTI) the conferees to vote for or against the provision, and that MTI is currently up for debate.

The Coburn-Durbin provision would reduce the level of federal crop insurance premium subsidy support by 15 percent for farmers with adjusted gross incomes (AGI) in excess of $750,000.

The provision acknowledges a key reality: the federal government pays too much to subsidize crop insurance for farmers. A March 2013 GAO report pointed out that the federal government pays an average of 62 percent of farmers' crop insurance premiums, and paid out over $16 billion to cover farmers' premiums and losses in 2012.

What's worse? The largest crop insurance payouts are giveaways to America's largest and most profitable commercial farming operations. In 2011, 5 percent of these operations garnered over a third of the total premium subsidies. The following chart shows how benefits are distributed: the bottom 50 percent of recipients-many of them what we would think of as "family farmers"-receive next to nothing. In contrast, the top 10 percent of recipients received $4 billion. Something is wrong here.

The Coburn-Durbin provision takes a step in the right direction by curbing payouts to the wealthiest segment of premium subsidy recipients. It is a symbolic recognition of the fact that agriculture policy-and particularly the crop insurance program-is highly inequitable and very expensive. In a time of tight budgets, billions in payouts to a sector that is projected to bring in a historical record of $120.6 billion in net farm income this year are simply not warranted.

In fact, the Coburn-Durbin provision could go much further. By setting an AGI at three-quarters of a million dollars, the amendment is likely to impact only the wealthiest 1 percent of farming operations. And it won't affect them very much-a 15 percent reduction in premium subsidies is quite modest. Plus, the government will still be on the hook for most of the insurance indemnities incurred by those large operations. For example, the twenty plus farm operations currently receiving annual premium subsidies in excess of one million dollars would be reduced to receiving only between $850,000 and $1.35 million in subsidies instead of between $1 million and $1.5 million.

Much more work remains to be done if the federal crop insurance program is to turn away from its current practice of subsidizing multimillion dollar businesses that can unequivocally manage their own risk. An across-the-board cut in premium subsidy rates would be one productive way to go. Setting meaningful premium subsidy caps-as the Kind-Petri amendment would do-would be another.

That amendment is a stronger reform, but Rep. Ryan's motion on Coburn-Durbin will make it crystal clear who is opposed to reform of any kind. The Coburn-Durbin amendment sends an important message: it is time to begin rolling back a policy that has become synonymous with agribusiness welfare.

 

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About the Author

 

Vincent H.
Smith
  • Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU’s Agricultural Marketing Policy Center. He received his Ph.D. from North Carolina State University in 1987 and his bachelor’s and master’s degrees from the University of Manchester in 1970 and 1971. Dr. Smith’s current research program examines agricultural trade and domestic policy issues, with a particular focus on agricultural insurance, agricultural science policy, domestic and world commodity markets, risk management, and agricultural trade policy. He has authored nine books and monographs and published over 100 articles on agricultural and other policy and economic issues. His work has been recognized nationally through multiple national awards for outstanding research programs. In 2008, he became a Distinguished Scholar of the Western Agricultural Economics Association. Currently he is a Visiting AEI Scholar and co-director of AEI’s agricultural policy initiative. Dr. Smith is married and he and his wife, Laura, have two children, Karen and Meredith.
  • Email: uaevs@montana.edu
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