Is there a problem with crop insurance as we know it? One Iowa State University (ISU) economist thinks the answer is yes.
According to Dar Danielson of Radio Iowa, ISU economist Bruce Babcock recently issued a report that finds that government incentives (read subsidies) to help producers pay for their crop insurance premiums push them toward a higher end product with increased costs to taxpayers. Radio Iowa said Babcock studied crop insurance payouts to farmers for corn and soybeans — related to the 2012 drought. Babcock made his comments during a conference call set up by the Environmental Working Group, Danielson said.
Babcock said, “The premium subsidies incentivize farmers to buy Cadillac coverage. The Cadillac coverage increases the indemnities paid out,” said Babcock. “Taxpayers are paying three-quarters of those indemnities, so the subsidies have a direct impact on taxpayer costs.”
He told Radio Iowa that the subsidies inflate the overall indemnities, with taxpayers paying the most in those high-loss years. We certainly know that 2012 was one of those years.
The program said Babcock had found the payouts for top insurance coverage were over $12 billion in 2012. He studied the effects of the subsidies on the cost of crop insurance and found that if farmers had not had the government incentives, they would have purchased insurance that cost much less.
He said farmers would have looked at the costs without government incentives and purchased “bare bones,” or regular insurance protection.
Babcock told Radio Iowa that he is not critical of the idea of crop insurance itself, but only of the subsidies. “And, I just think you could cut the subsidies a tremendous amount — or restructure them — save tens of billions of dollars over 10 years and still provide a high-quality assurance safety net,” he said.
Not everyone supports even the idea of farm subsidies — for insurance or any other purpose under the farm bill. Justin Green, writing in The Daily Beast, said, “Why don’t we eliminate farm subsidies?” Green said the White House has included “real cut” to agriculture in its 2014 budget. He said that is a good thing and long overdue. That’s clearly an outside-of-agriculture view of farm bill provisions.
Green told his readers that the direct payments to farmers were meant to be transitional in nature, but have become entrenched. Original farm subsidies had conservation of land as a major driver. But, things will change. He said, “The already enormous federal subsidies for crop insurance, and the crop insurance program, doesn’t currently have these same conservation compliance regulations.”
The fact is that crop insurance is a necessary part of any good farm program, but replacing genuine policy decisions with money for expensive insurance plans may not be a good thing for taxpayers, or for preservation of valuable arable land.
I’ll see ya.
An Iowa native, Peter Graham has been a rural newspaper editor for more than 40 years. He currently edits a twice-weekly paper in Western Iowa. You can contact him at (712) 642-2791 or [email protected] sourivalley times.com.