The Two Sides of Crop Insurance

In this Aug. 16, 2012 file photo, a combine harvests corn in a field near Coy, Ark.  Thousands of farmers are filing crop insurance claims this year as drought and triple-digit temperatures burn up much of the corn belt. The Agriculture Department has paid $1.4 billion to date, but the bulk of claims hasnít been filed yet as the corn and soybean harvests have just begun.
National Journal
Michael Catalin
Add to Briefcase
Michael Catalin
Sept. 18, 2013, 4:30 p.m.

Call it a Wash­ing­ton story.

De­pend­ing on whom you talk to, the crop-in­sur­ance pro­gram is either an es­sen­tial risk-man­age­ment tool that helps farm­ers when dis­aster strikes or a Robin Hood-in-re­verse scheme that takes from the poor and gives to the rich.

Crop in­sur­ance pays farm­ers when their pro­duc­tion un­der-per­forms; the fed­er­al gov­ern­ment pays a sub­stan­tial por­tion of the premi­ums. Out­side ana­lys­is and eco­nom­ic ex­perts boldly as­sert that the pro­gram, which grew up over the past sev­er­al dec­ades, sub­sid­izes rich farm­ers at the pub­lic’s ex­pense.

“People who are not on the House or Sen­ate Ag com­mit­tees are ba­sic­ally say­ing, ‘Why are we giv­ing rich people lots of money when we have budget de­fi­cits and we’re cut­ting pro­grams to help very poor people?’ ” said Vin­cent Smith, an eco­nom­ics pro­fess­or at Montana State Uni­versity and a schol­ar at the Amer­ic­an En­ter­prise In­sti­tute.

The pro­gram, which sub­sid­izes the cost of in­sur­ance for pro­du­cers to the tune of 62 per­cent, sets up a mor­al haz­ard for farm­ers, Smith ar­gues. The think­ing goes like this: If the gov­ern­ment is will­ing to pay most of the cost of in­sur­ance, farm­ers have an in­cent­ive to use few­er pesti­cides and herb­i­cides and to farm mar­gin­al lands, be­cause they’re shoul­der­ing less risk, pay­ing only 38 per­cent of the cost of in­sur­ance premi­ums.

This dy­nam­ic ex­plains why the pro­gram has faced scru­tiny lately. “A De­pres­sion-era pro­gram in­ten­ded to save Amer­ic­an farm­ers from ru­in has grown in­to a 21st-cen­tury crutch en­abling af­flu­ent grow­ers and fin­an­cial in­sti­tu­tions to thrive at tax­pay­er ex­pense,” blas­ted a re­cent Bloomberg News art­icle that took a crit­ic­al look at the crop-in­sur­ance pro­gram.

But the pro­gram also has power­ful de­fend­ers, in­clud­ing House Ag­ri­cul­ture Com­mit­tee Chair­man Frank Lu­cas, R-Okla. Ad­voc­ates ar­gue that the pro­gram — which cost tax­pay­ers al­most $14 bil­lion last year, ac­cord­ing to Ag­ri­cul­ture De­part­ment fig­ures — saves the gov­ern­ment from bail­ing out farm­ers when dis­asters hap­pen. “Without crop in­sur­ance, these farm­ers would have no way to re­cov­er from these dev­ast­at­ing con­di­tions un­less the gov­ern­ment would step in to provide im­me­di­ate, un­planned, and un­budgeted dis­aster as­sist­ance,” Lu­cas said in a ra­dio ad­dress. “With crop in­sur­ance, farm­ers are able to plan for dis­asters by pay­ing for cov­er­age. This cov­er­age doesn’t make them whole, but rather helps them sur­vive.”

Le­gions of lob­by­ists also de­fend the pro­gram. In 2012, farm and crop-in­sur­ance in­terest groups spent $52 mil­lion try­ing to in­flu­ence the gov­ern­ment, ac­cord­ing to the Sun­light Found­a­tion. Pro­mot­ing the crop-in­sur­ance pro­gram against crit­ics has be­come a ma­jor busi­ness. Sev­er­al dozen in­terest groups wrote a joint let­ter to sen­at­ors dur­ing the farm-bill de­bate in March ur­ging a “strong, mean­ing­ful and af­ford­able” pro­gram.

“In ag­ri­cul­ture, one thing is for cer­tain: Crop loss will oc­cur in some part of the United States each year. The sig­ni­fic­ant, wide­spread crop losses of 2011 and 2012 have clearly demon­strated the need for crop-in­sur­ance pro­tec­tion and the pub­lic-private part­ner­ship of pro­gram de­liv­ery,” they wrote.

Keith Collins, a former chief eco­nom­ist at USDA who works with Na­tion­al Crop In­sur­ance Ser­vices, a non­profit that ad­voc­ates for the pro­gram, poin­ted to the drought that hit the South­w­est last year. Com­pens­a­tion for drought-re­lated dam­age amoun­ted to about $17 bil­lion. If it wer­en’t for the crop-in­sur­ance pro­gram, ad­voc­ates say, the cost of that crisis would have been passed on to con­sumers.

“If you didn’t have a sub­sidy, you’d have to charge for that. And so your premi­um rates for in­sur­ance for the kinds of risk that crop in­sur­ance cov­ers would be very high,” Collins said. “It’s not like an auto­mobile ac­ci­dent that sort of oc­curs ran­domly throughout so­ci­ety. But once you have a drought or you have a ma­jor flood or a hur­ricane, you get these sys­tem­ic losses.”

Pay­outs, though, have been a source of cri­ti­cism, with de­tract­ors char­ging that crop-in­sur­ance com­pany ex­ec­ut­ives are re­luct­ant to make them. To some ex­tent, that’s just how the busi­ness works, some ad­voc­ates say.

“In­sur­ance com­pan­ies are in the busi­ness to earn an ad­equate re­turn on their in­vest­ment; that’s what they do for a liv­ing. So for them to not want to pay losses, that’s their be­ha­vi­or,” said Thomas Zachari­as, pres­id­ent of Na­tion­al Crop In­sur­ance Ser­vices.

At the same time, ad­voc­ates say, pay­outs would ar­gu­ably be less if the gov­ern­ment ran the pro­gram rather than just sub­sid­ized it, on the as­sump­tion that a pro­gram run en­tirely by the pub­lic sec­tor would be less ef­fi­cient. “The in­cent­ive to pay losses at the mar­gin would not be as great as the private sec­tor,” Zachari­as said.

But op­pon­ents say the real is­sue is wheth­er gov­ern­ment should be sub­sid­iz­ing pro­du­cers at the level it does. Smith poin­ted to con­ser­vat­ive law­makers who have raised this is­sue — but, he notes, they’re not on the Ag­ri­cul­ture Com­mit­tee.

“They’ve all been say­ing farm sub­sidies are not bail­ing out Grapes of Wrath [farm­ers] who are fa­cing ra­pa­cious land­lords,” Smith said. “This is not Stein­beck’s Grapes of Wrath story. In gen­er­al, most people are not go­ing to like a policy that takes money from the av­er­age tax­pay­er and gives to people who are rich­er. That’s what crop-in­sur­ance policy does.”

What We're Following See More »
24% GOOD ENOUGH FOR FIRST PLACE
Macron, Le Pen Lead French Elections
1 hours ago
THE LATEST

"Centrist Emmanuel Macron and far-right politician Marine Le Pen led the first round of voting in France’s presidential election, according to early projections, as voters redrew the political map, placing the European Union at the center of a new political divide. Projections by the Kantar-Sofres polling firm showed Mr. Macron on track to win the first round with about 24% of the vote, ahead of Ms. Le Pen with nearly 22%." The vote marks the end of the country's dominance by conservative and socialist parties. The top vote-getters head to a runoff on May 7.

Source:
MENDING FENCES?
Trump to Deliver Keynote for Holocaust Memorial Event
1 hours ago
THE DETAILS

President Trump will deliver the keynote address for at the National Holocaust Museum's National Day of Remembrance ceremony on Tuesday. He'll speak from the Capitol Rotunda. The move is likely an effort to try to mend fences with Jewish groups. In January, "the White House ignited controversy when it didn't mention Jews or anti-Semitism in a statement on International Holocaust Remembrance Day." And certain members of his inner circle are still suspected of harboring white supremacist or anti-Semitic views."

Source:
MAY NOT SIGN BUDGET BILL WITHOUT IT
Trump Issues Threat on Border Wall Funding
1 hours ago
THE LATEST

"President Trump and his top aides applied new pressure Sunday on lawmakers to include money for a wall on the U.S.-Mexico border in a must-pass government funding bill, raising the possibility of a federal government shutdown this week. In a pair of tweets, Trump attacked Democrats for opposing the wall and insisted that Mexico would pay for it “at a later date,” despite his repeated campaign promises not including that qualifier. And top administration officials appeared on Sunday morning news shows to press for wall funding, including White House budget director Mick Mulvaney, who said Trump might refuse to sign a spending bill that does not include any."

Source:
DOCUMENTS OBTAINED BY U.S. INTEL
Putin-Linked Think Tank Developed Plan to Influence U.S. Election
4 days ago
THE LATEST

A Russian government think tank run by Putin loyalists "developed a plan to swing the 2016 U.S. presidential election to Donald Trump and undermine voters’ faith in the American electoral system." Two confidential documents from the Putin-backed Institute for Strategic Studies, obtained by U.S. intelligence, provide "the framework and rationale for what U.S. intelligence agencies have concluded was an intensive effort by Russia to interfere with the Nov. 8 election."

Source:
HELPED WIN FISA APPROVAL
FBI Relied on Dossier Allegations to Monitor Page
5 days ago
THE LATEST

"The FBI last year used a dossier of allegations of Russian ties to Donald Trump's campaign as part of the justification" to monitor Carter Page, who was then a defense adviser to the Trump campaign. "The dossier has also been cited by FBI Director James Comey in some of his briefings to members of Congress in recent weeks."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login