April 28, 2012

THERE’S GOOD news and bad news from the Senate Agriculture Committee. On Thursday, it voted to eliminate the wasteful “direct payments” subsidy program when the five-year farm bill expires at the end of September. But it offset much of the savings by expanding subsidies for federal crop insurance. Rife with opportunities for fraud and abuse, this program hurts small farmers and distributes resources upward in the income scale even when it works as designed.

Even before the committee voted to expand it, crop insurance was one of the fastest-growing items in the federal budget, having ballooned from $951 million in 2000, or about $1.2 billion adjusted for inflation, to $7.3 billion in 2011. Under existing law, the program was set to cost about $39 billion over the next five years, according to the Congressional Budget Office.

Crop insurance pays farmers for losses attributable to natural disasters and other sudden calamities. Though it is sold by nominally private companies, the federal government pays an average 62 percent of premiums under current law, plus administrative expenses, regardless of the insured operator’s economic wherewithal.

The bigger and more valuable your crop, the more insurance you need; the more insurance you need, the more Uncle Sam gives you to help pay for it, up to a maximum subsidy rate of 80 percent. This is why a mere 33,690 of the biggest and most successful farmers — 3.9 percent of the total — received one-third of all premium subsidies in 2011, or more than $2 billion, according to a Government Accountability Office (GAO) study released this month.

The GAO identified 53 entities that got more than $500,000 each in subsidies during 2011, including a giant operator who received $1.3 million to ensure vast fields in eight counties of two states. Small farmers have a hard enough time surviving against behemoths like that. Capping subsidies at a still generous $40,000 each would have given the little guys a fighting chance, while saving taxpayers $1 billion.

As the GAO also reported, the crop insurance program is vulnerable to fraud, because it is highly complex and relies on farmers to self-report their losses. The Agriculture Department is supposed to scan its data base for suspicious claims but does not do so as aggressively as it should, the GAO found. The agency can threaten suspected deviants with on-site inspections, the GAO noted, but often does not follow up.

Yes, farming is a unique business, vulnerable to bad weather and other hard-to-insure risks. There is a case to be made for a governmental safety net. But federal crop insurance overprotects, to put it mildly. It may even harm food security by encouraging farmers to be less risk-averse stewards of the land than they would be without such lavish insurance. Certainly, it gives them no incentive to set aside current income — which hit an all-time record of $98.1 billion last year — for the proverbial rainy day. At a time of trillion-dollar deficits and threatened cuts in other programs, we need less of this giveaway to a prosperous industry, not more.