Crop Insurance Expansion Pushes Cost Increase in Latest U.S. Farm Bills

May 13, 2013

The federally subsidized crop insurance program, the costliest part of the U.S. farm safety net, would spin off at least three new types of coverage and could cost 10 percent more under draft farm bills pending in the U.S. House of Representatives and Senate.

Members of the Senate and House Agriculture committees are scheduled to debate their respective bills next week. Both of the five-year farm bills would cost roughly $500 billion, the bulk of it to be spent on food stamps for the poor.

Overall, the government safety net for farmers is shrinking, House Agriculture Committee staff said in a briefing on Friday. Traditional crop subsidies in the House bill would be slashed by $22 billion over 10 years, or 34 percent, while crop insurance funding would go up by $11 billion, they said, based on unofficial figures.

Crop insurance was projected by the Congressional Budget Office to cost about $9 billion a year before any changes ordered by the farm bill. Costs could rise by 10 percent under the figures cited by House staff workers. The Senate farm bill was projected last year to increase crop insurance by 5 percent.

As part of crop insurance, the government pays 62 cents of each $1 in premiums, pays part of overhead costs for insurers and shares in the loss in bad years. Insurers are required to offer policies to all farmers.

A House Agriculture Committee spokeswoman said the insurance system would be more efficient and market-oriented under the provisions of the farm bill. Farmers pay for coverage and get a payment only after substantial losses, she said.

The legislation in both chambers would create a so-called revenue insurance plan for cotton to replace traditional subsidies which are triggered by low market prices. They also would create a revenue program for peanuts and a “supplemental coverage option” to protect farmers from shallow losses in revenue.

“Fundamentally, the safety net has been expanded,” said agricultural economist Vince Smith of Montana State University, after viewing the Senate and House drafts. “There is more coverage for any downside (price) movement in the covered commodities.”

Revenue protection can become hugely expensive if market prices decline by 20 percent or more, said Smith, a frequent critic of crop insurance.

In its first forecast for the 2013/14 U.S. corn marketing year on Friday, the U.S. Department of Agriculture put the season midpoint price for corn at $4.70 per bushel against $6.90 in 2012/13, a 32-percent decline.

The Environmental Working Group, which supports more money for conservation programs, criticized the House and Senate bills for “providing an especially generous insurance subsidy to cotton farmers” and creating the supplemental coverage plan for other growers.

The government would pay 80 percent of the premium on the cotton policy and 65 percent on the supplemental coverage premium.

The Senate farm bill would require growers to practice soil conservation to qualify for subsidized premiums and require the wealthiest growers to pay a larger share of that premium.

The House Agriculture Committee leaders rejected those ideas in their bill. The 576-page draft was unveiled on Friday and can be viewed here:

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