May 11, 2012
On Tuesday, May 8, Senators Tom Coburn (R-OK) and Richard Durbin (D-IL) sent a letter to Senate Agriculture Committee leaders in support of reforming the federal crop insurance program by placing caps on the amount of taxpayer subsidies any one farm could receive annually. The letter represents a first step toward an amendment to the 2012 Farm Bill to be offered on the Senate floor later this year.
Taxpayers share the cost of crop and revenue insurance premiums with producers, with the taxpayer share of the premium ranging from 38 to 80 percent. The nationwide average last year was 62 percent, with the farmer share averaging 38 percent.
In 2011 these subsidies cost the taxpayer $7.4 billion, and according to the Congressional Budget Office, under current law, the total cost to the taxpayer of the crop insurance program over the next decade, including both the premium subsidy as well as payments to the companies that sell crop insurance will be $90 billion. The new farm bill recently reported out of the Senate Agriculture Committee increases that total cost slightly.
Senator Coburn earlier had requisitioned a U.S. Government Accountability Office report on insurance premiums that analyzed per farm subsidies and explored a scenario in which the subsidy would be capped at $40,000 per farm operation per year. The GAO concluded, based on USDA data, that such a cap would save one billion dollars in a high premium year such as 2011. It also found that such a cap would impact less than four percent of total crop insurance program participants, but those largest farming entities account for nearly a third of total premium subsidies.
The Coburn-Durbin letter states that “Large farms are better positioned than smaller farms to pay a higher share of premiums, according to GAO…. Moreover, the report found that not limiting premium subsidies for individual farmers and farm entities could be prohibitive for small and beginning farmers. According to GAO’s findings, federal benefits like premium subsidies could contribute to an increase in land process, which make expanding or even entering the industry difficult for small and beginning farmers.”
The two Senators make clear in their letter that they support the federal crop insurance program, stating, “…it is critical to make good programs better to ensure they are performing as intended and are fiscally sound taxpayer investments. Good programs should never be immune to oversight and improvement when needed. Maintaining the integrity of crop insurance will help ensure it continues to serve as a primary safety net program for our nation’s farmers.”
NSAC’s farm bill platform contains a different variation on capping crop insurance subsidies, based on a graduated reduction in the amount of the premium subsidy as the per farm total volume of insured products increases. We will await further details to emerge on the Coburn-Durbin effort, but will very likely support their effort to amend the program to improve its fiscal integrity and reduce its contribution to farm consolidation and economic concentration.
University of Illinois economist Gary Schnitkey recently offered some analysis and thoughts about the impact of the GAO recommendation, noting that the size of farm impacted by a dollar limit would vary by year depending on commodity prices and also vary by level of risk. Generally speaking, in years with higher commodity prices the size of farm that hits the cap will be smaller than in years with lower commodity prices. Schnitkey also concludes that the cap will hit high risk farms at a smaller number of acres than lower risk farms.
These are important observations, but not unreasonable outcomes from a public policy standpoint. Nonetheless, there are a variety of ways to more finely tune subsidy limitation proposals that may yet receive consideration as the farm bill process moves forward.