February 4, 2015
On Tuesday February 3, Senators Shaheen and Toomey introduced legislation to cap crop insurance subsidies at $50,000 per entity.
According to the Congressional Budget Office, this payment limit would save the federal government $2.2 billion over 10 years while impacting only 2.5 percent of producers.
Currently, the federal government subsidizes, on average, 62 percent of a producer’s crop insurance premium, though for many farms the subsidy rate is considerably higher. This premium subsidy has been provided in order to encourage more farmers to take part in the program and thus avoid the need for Congress to consider ad hoc disaster program in bad crop years. However, other consequences of increased subsidies have put family farmers, new and beginning farmers, and the environment at risk.
Since 2000, when the effort to promote crop insurance ramped up, premium subsidies have risen from 37 percent to an average of 62 percent. Subsidies can run as high as 80 percent for certain products and coverage levels.
The result of the increased subsidies has been the removal of a considerable amount of the risk associated with growing crops, particularly corn, soybeans, rice, cotton, and wheat, which receive the vast majority of the subsidies. The consequences of this much-reduced level of risk include:
When this much risk is removed, farmers tend to plant on more marginal land, which can include erosive hillsides, sensitive wildlife habitats, and areas more prone to runoff, which can harm water quality.
The removal of most of the risk of farming also allows the largest farms and outside investors more leverage to purchase more land which makes it harder for mid-size family farms to expand and survive and new and beginning farmers to get into farming.
Our nation’s credit and crop insurance programs should work for all farmers and ranchers including beginning farmers, organic farmers, and operators of small and mid-sized farms and of highly diversified farms. It should not favor one kind of crop or method of production over another and should not remove so much risk from farm that farmers are moved to farm the program rather than the land.
Since the 1970s, as part of the social bargain that allows certain farms to have a federally supported safety net, there have been subsidy limits for commodity programs, just as there are for virtually all federal entitlement programs. It is high time for crop insurance, a tiny program in the 1970s but for many years now the largest and most costly of all the farm subsidy programs, to join the ranks of all the other entitlements, with appropriate subsidy limits. The days of subsidizing every last acre and bushel regardless of how large the farming entity and regardless of the social cost must come to an end.
NSAC thanks Senators Shaheen and Toomey for introducing this important piece of legislation. Premium subsidy caps of some type are, in our view, one very important piece of a larger, much needed crop insurance reform agenda. We look forward to working with the Senators and other lawmakers on comprehensive reform.