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Farm Insurance Racket
The only risk-free business in America

Saturday, October 21, 2006

IF WE ASKED Congress to spend billions making the newspaper business a risk-free enterprise, our editorial would be laughed out of the Capitol. Yet that is essentially the deal American farmers -- and the insurance companies that profit from their government-sponsored premiums -- get from the federal government every year. The result, according to a two-part Post investigation published this week, is billions of federal dollars wasted in unfair and uncompetitive handouts, many of which go to farmers working land that would be left fallow in a freer market.

The Post's study found that many farmers benefit not only from government-backed, cut-rate farm insurance but also from federal disaster relief funds. This double-dipping means that farmers who lose 35 percent or more of a crop can recoup up to 95 percent of the money they would have gotten from selling their harvest. Ironically, Congress approved a complex public-private scheme that offers cheap farm insurance to all comers in order to wean farmers off disaster aid. Yet even now that the federal government pays, on average, 60 percent of farmers' premiums, lawmakers continue to pass redundant emergency aid for afflicted farmers.

Because of the government largess, farmers in parts of the country that are less than hospitable to productive agriculture continue to plant -- and eat up federal money. Post investigators Gilbert M. Gaul, Dan Morgan and Sarah Cohen revealed, for example, that over the past four years, Mark Orebaugh, a farmer in parched southwestern Kansas, paid $81,730 in insurance premiums and received $295,796 back in claims, more than 3 1/2 times what he put in. He has also taken disaster aid on top of that, as significant portions of his crop were destroyed in four of the past six years. In the past 10 years, four of every 10 dollars in disaster relief went to only four states -- Kansas, North Dakota, South Dakota and Texas. More than half of all farm payouts are concentrated in 25 congressional districts.

Unproductive farmers are not the only ones taking advantage. The insurance companies that work with the government to provide farm disaster coverage have seen their profits balloon in recent years. The federal government sets the price for coverage, helps farmers pay it and reimburses insurers for administrative costs. The insurance companies then shift the liability for their most risky accounts onto taxpayers. Last year, these farm insurers posted profits of $927 million and took $829 million in administrative fees from the government.

Nevertheless, North Dakota farmer Terry Aronson unpretentiously defended the system to Post reporters. "Taxpayers are funding something good, the rural life." Yet most Americans -- removed from "the rural life" in urban and suburban communities -- pay not only the opportunity cost of funneling money to farmers but also the incalculable costs of failed trade talks, which hurt the American consumer. America has a sentimental attachment to its farmlands. But preserving the rural life of a few, unproductive farmers is not worth the price it pays to do it.

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