Viewpoint: Costs Bury Insurance Savings Promised in Farm Bill

By The Editors, Bloomberg Opinion | October 2, 2014

When does a $23 billion spending cut result in no savings at all? When it’s part of the U.S. farm bill.

Just a few weeks ago, the newest bill — a grab bag of subsidies for farmers and federal nutrition programs — began to go into effect. It was meant to save money by swapping $5 billion in annual direct payments to farmers with new kinds of insurance. But these programs look like they are turning out to be even more bloated and wasteful than the old cash giveaways.

The new insurance programs will either protect farmers when prices drop or their revenue declines, experiencing so-called shallow losses. (A separate federal insurance program covers catastrophic crop failures caused by floods, hail and drought.) So when prices fall somewhat, as they have this summer, farmers can come in for a payout. That wouldn’t necessarily cost taxpayers so much, except that Congress, under pressure from Big Ag, pegged the price floors that trigger payouts to the record-breaking commodities prices of recent years.

The average price that results in payouts to corn producers, for instance, is $3.70 a bushel. Thanks to a crop that may be the biggest on record, corn now fetches only $3.40 a bushel. In the case of wheat, the trigger price is $5.50 a bushel, and the current price is $4.93 a bushel. Prices for peanuts, sunflower seeds and some other commodities are lower than or close to the trigger levels, too.

The total amount the government will have to pay out is hard to estimate because many farmers have yet to harvest and sell their crops.

The farm bill also contains older types of crop insurance that pay farmers if yields — not just prices — fall below preset levels. And there are subsidies for the farmers’ insurance premiums that are so large and inefficient, the government might save money by giving coverage away for free.

The cost run-up was predictable — and unsurprising to anyone familiar with the history of bloated farm bills. The 2002 version of the bill, for example, was supposed to cost $451 billion over 10 years, but ultimately came in at $588 billion. The 2008 bill was even worse, chewing up $913 billion when it was supposed to cost $641 million.

It’s small consolation that the $23 million in expected savings this time wasn’t that much to begin with. It works out to a puny $2.3 billion over the 10-year life of the $956 billion program. The greater loss is to public confidence that Congress can ever stop wasting money on the farm bill.

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