WASHINGTON, Oct. 18, 2017 - Critics of crop insurance are laying the groundwork for winning amendments to the next farm bill that could slash premium subsidies and support to the insurance industry.
The first test of support for crop insurance could come as early as this week when the Senate debates a fiscal 2018 budget resolution. The Senate leadership is expected to allow votes on a series of non-binding amendments, and some targeting crop insurance could be offered. Votes on any such amendments will essentially be test runs for the farm bill debate.
Senate Agriculture Chairman Pat Roberts, R-Kan., told Agri-Pulse on Tuesday that he is preparing to argue against any amendments attacking crop insurance or other farm programs. “Hopefully, we’re ready for it and will win the fights," he said.
Whether this week or when the farm bill is on the floor, critics of crop insurance will be making familiar arguments that the crop insurance program provides more assistance than farmers and companies deserve. The critics also are making a new argument that the farm economy is in better shape than is being portrayed.
"At worse, we’re average, and at best, we’re above average if we’re the agricultural sector,” economist Vince Smith, a visiting scholar at the American Enterprise Institute, said at an Oct. 4 meeting of about two dozen groups that are working on a strategy for the farm bill debate.
Net cash farm income, a measure of farm cash flow, is expected to reach $100.4 billion in 2017, an increase of nearly 13 percent over last year and close to the 2000-2016 average when adjusted for inflation, according to USDA. (However, the same data show that farm income is down sharply from 2011-2014, the period when the current farm bill was written.)
At a separate forum hosted by AEI last week, Joe Glauber, a former chief economist for the Agriculture Department, presented data showing that many agricultural sectors are actually doing better this year than in 2016. Farm business income is up 40 percent for dairy producers, 35 percent for hogs, 29 percent for cotton, 14 percent for cattle, and 12 percent for wheat. Income on corn and soybeans is flat, he said.
Joe Glauber
“Prices of many commodities have both increased over the last year and … are remaining relatively high, according to long-term averages,” Glauber said.
Glauber and Smith also teamed up on a report that calls for replacing the crop insurance program with a simpler disaster-assistance program that would compensate farmers for crop losses with payments triggered according to indexes for plant growth.
Their report, co-authored with Barry Goodwin of North Carolina State University, claims the insurance program “encourages farmers to waste resources” and disproportionately benefits large, successful operations that don’t need the assistance.
The report is especially critical of the Harvest Price Option, which allows production losses to take into account harvest-time price increases. “The HPO can perhaps best be described as gold-plated insurance, most of which is paid for by the taxpayer and not the farmer,” the report says.
Congressional critics of crop insurance are expected to try to amend the farm bill with all or parts of the AFFIRM Act, which would cap premium subsidies at $40,000 per farmer, eliminate subsidies for the HPO, reduce payments to the private insurers and agents, and require public disclosure of subsidies to farmers.
Cutting or eliminating HPO subsidies alone means “participation levels in revenue insurance could drop substantially and shift back to pre-2000 levels,” the report says.
A separate new study that Smith co-authored suggests that capping the amount of premium subsidies could generate significant savings to taxpayers while affecting relatively few farmers. The study, based on data from USDA's Agricultural Resource Management Survey (ARMS), estimated that a cap of $40,000 in 2014 would have saved $2.02 billion while affecting 5 percent of farms. Moreover, 77 percent of the savings would come from reducing assistance to farms that received over $100,000 in premium subsidies in 2014, the study claims.
Defenders of crop insurance also argue that reducing premium subsidies to high-income producers could push them out of the program and lead to premium increases for the farmers who remain. “As commodity prices decline and farmers’ budgets tighten, an increase in the cost of crop insurance is only more likely to result in a decrease in crop insurance purchases,” according to the Crop Insurance and Reinsurance Bureau.
According to a recent Mississippi State University study cited by CIRB, farmers won’t buy insurance if the premiums exceed 4 percent of the crop value.
House Agriculture Chairman Mike Conaway dismisses the attacks on HPO, likening it to having a homeowners policy that accounts for increases in property value, and says he’s ready to defend the insurance program from attacks on the House floor.
House Ag Chair Mike Conaway, R-Texas
“We’re going to defend it all. You can stand in waist-high cotton in Texas and understand the value of crop insurance that has been destroyed by rising water,” said Conaway, R-Texas, told Agri-Pulse. "There’s plenty of evidence why we need crop insurance.”
Amendments attacking crop insurance will be a threat in both chambers.
The Senate in 2013 easily approved, 59-33, an amendment that would have reduced crop insurance premium subsidies for farmers with adjusted gross incomes of more than $750,000. The measure didn’t make it into the final legislation, but the wide margin became a rallying point for crop insurance critics.
In 2013, the House narrowly rejected, 217-208, an amendment by Rep. Ron Kind, D-Wis., that was similar to the AFFIRM Act and would have capped premium subsidies at $50,000 per producer and cut off subsidies to any farmer with an adjusted gross income of more than $250,000. Another provision would have capped administrative and operating costs at $900 million.
Those and other amendments are certain to offered again. The question is, which ones will leaders allow to be debated? A more targeted amendment such as the one that the Senate approved in 2013 would likely have a better chance of getting adopted in the House than one like the AFFIRM Act that includes an array of provisions.
“We’ll defend what the Rules Committee puts in order,” Conaway said, making clear that he’ll be providing the panel with advice on what amendments should be debated. “I think it will be a fair process.”
Read CIRB's summary of reasons to oppose crop insurance cuts here.
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