So what’s not to like? Alas, what the bill takes from farmers with one hand, it partially gives back with the other. The bill’s savings would have been almost twice as great if it did not offset the elimination of direct payments with a new, subsidized crop insurance program on top of the generous one from which farmers already benefit.
Existing crop insurance protects farmers against not only crop failure but also price fluctuations; the government subsidizes premiums and administrative expenses to the tune of more than $7 billion per year. The new program in the bill would add coverage for “shallow losses” — that is, losses that are part of the farmer’s deductible under the current program. This would cost about $3 billion per year, according to the Congressional Budget Office — assuming that current high prices continue in the short run. If they don’t, the program’s initial costs could go up significantly.
Excessive crop insurance encourages farmers to plant marginal land, secure in the knowledge that they’ll be bailed out if it does not produce. It reduces their incentive to set aside cash reserves during good years — and farm income exceeded $100 billion for the first time in 2011, so producers are hardly suffering. The more crop you grow, the more premium support you get (up to a maximum subsidy rate of 80 percent). Good for big farms, bad for their smaller competitors. The Government Accountability Office (GAO) reported in April that 53 big farm entities got more than $500,000 each in subsidies during 2011. Capping subsidies at $40,000 each would save $1 billion per year, the GAO found.
To be sure, the authors of the Senate bill have included some measures to counteract these distortions, including a reduction in the subsidy for shallow loss insurance on marginal land. But the tweaks don’t go nearly far enough.
Farming is vulnerable to Mother Nature; because of the public interest in a stable food supply, government has to supply a reasonable safety net if the private sector cannot.
But no business is entitled to risk-free revenue at taxpayer expense. Lavish crop insurance is neither morally nor economically justifiable, especially at a time when agriculture is financially stronger than ever.
President Obama praised the new bill but rightly asked the Senate to cut crop insurance more. Sen. Tom Coburn (R-Okla.) and Sen. Richard J. Durbin (D-Ill.) are planning to offer an amendment that would cap crop insurance subsidies, consistent with the GAO’s analysis. The current bill achieves some reform. There is still much more to be done.