House Plan Would Cut Crop Insurance Cost

March 20, 2012

U.S. farm and crop insurance subsidies would be cut by $30 billion over 10 years under a proposal made by the House of Representatives Budget Committee chairman on Tuesday, far larger reductions than agricultural-state lawmakers suggested.

Budget chairman Paul Ryan called for reductions in the $5-billion-a-year “direct payment” subsidy and for reforms to control the soaring cost of federally subsidized crop insurance, the largest part of the farm safety net at nearly $9 billion a year.

“These reforms will save taxpayers roughly $30 billion over the next decade,” Ryan wrote in a budget blueprint for the federal government. The cuts equal 19 percent of projected spending in the two areas through fiscal 2022.

If the House agrees with Ryan, the Agriculture Committee will be required to write a farm bill that meets the goal of $30 billion in cuts. Earlier this month, its leaders said $23 billion would be appropriate. The Senate Agriculture Committee aims for a bill that saves $23 billion.

Ryan’s plan would reduce “the fixed payments that go to farmers irrespective of price levels” and “reform the open-ended nature of the government’s support for crop insurance so that agricultural producers assume the same kind of responsibility for managing risk that other businesses do”.

“The process outlined by the House Republican budget all but guarantees there will be no farm bill this year,” said Collin Peterson, the Democratic leader on the House Agriculture Committee. He said the proposed cuts in farm supports and food stamps were too large for Congress to accept.

If a farm bill is not passed this year, either Congress would have to approve an extension of the existing farm law or a 1949 law, that would feature higher costs and limited plantings, would automatically go into effect.

Agriculture chairman Frank Lucas, Oklahoma Republican, said the cuts “are only suggestions” and his committee will have a free hand in reforming policy and outlays. The new five-year farm bill will cost around $480 billion before any cuts.

The government now pays 60 percent of the premium for crop insurance as well as underwriting insurers’ operating costs and sharing the burden of payments to farmers in high-loss years.

President Barack Obama proposed $32 billion in farm subsidies in his budget proposal on Feb. 13. He would end the direct payment, idle less land, reduce crop-insurance subsidies, and revive a standby disaster-relief program.

“Ryan’s plan throws a monkey wrench into (farm bill) discussions,” said agricultural economist Vincent Smith of Montana State University, an advocate of crop insurance reform.

Farmers and their allies in Congress commonly oppose cuts as a threat to crop insurance viability.

Requiring growers to pay 60 percent of their premiums instead of 40 percent would save $1 billion a year, said Smith. Reducing the federal subsidy for delivery of policies would save as much or more, he said.

Smith said crop insurance is unduly expensive for the government and overwhelmingly benefits big operators. Growers could shield themselves from losses by common methods such as buying a futures contract, adjusting use of pesticides and crop nutrients or relying on their own resources, absent the hefty federal subsidy, he said.

Ryan also criticized the Dodd-Frank financial reform law as “government over-reach in the private sector”. The law brings over-the-counter trading in derivatives under federal regulation and has brought complaints of a welter of costly and complicated rules for futures and derivatives markets.

Much of Ryan’s criticism was aimed at the law’s impact on Wall Street. However, he called for a thorough review of financial regulations and for “repealing recent expansions of the federal role in financial services”.

Food stamps, which help poor people buy food, would become a block grant to states with a limit on spending in the Ryan plan. Access would be tied to work or job training. Food stamps account for three-quarters of farm-bill spending.

Ryan made a similar proposal a year ago and faced strong opposition. By one estimate, it would cut funds by $122 billion or 16 percent over 10 years; too much for anti-hunger advocates.

Topics Legislation Agribusiness

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