WASHINGTON, Sept. 8, 2014 -- The Government Accountability Office (GAO) is recommending that Congress consider reducing the level of federal premium subsidies for revenue crop insurance programs, saying the government could save hundreds of millions of dollars a year “with limited costs to individual farmers.”
The GAO report, requested by Sen. Tom Coburn (R-Okla.), the ranking member of the Homeland Security and Government Affairs Committee, noted that Federally subsidized crop insurance, which farmers can buy to help manage risk, has become one of the most important programs in the farm safety net. Revenue policies, which protect farmers against crop revenue loss from declines in production or price, are the most popular policy type and account for nearly 80 percent of all premium subsidies, it said, adding that the program's cost has come under scrutiny while the nation's budgetary pressures have been increasing.
GAO said the cost of the program grew significantly from 2003 through 2012, along with farm income and wealth. The cost of crop insurance averaged $3.4 billion a year from fiscal years 2003 through 2007, but increased to $8.4 billion a year for fiscal years 2008 through 2012.
According to USDA’s Risk Management Agency (RMA), which administers the crop insurance program, subsidies for premiums accounted for $42.1 billion -- or about 72 percent -- of the $58.7 billion total program costs from 2003 through 2012. Revenue policies, the most frequently purchased crop insurance option, accounted for $30.9 billion of the total premium subsidy costs for those years.
GAO found that the government would have potentially saved more than $400 million in 2012 by reducing premium subsidies by 5 percentage points, and nearly $2 billion by reducing these subsidies by 20 percentage points. Crop insurance premium subsidy rates—the percentage of premiums paid by the government—are set by Congress and would require congressional action to be changed. For most policies, the rates range from 38 to 80 percent, depending on the policy type, coverage level chosen, and geographic diversity of crops insured.
”Although such reductions would have required farmers to pay more of their premiums, the impact on their average production costs per acre would have been limited, usually less than 2 percent, and often less than 1 percent,” GAO said in the report. “The ultimate impact of such limited production cost increases on farmers' income would depend on their individual profit margins. However, for the industry as a whole, the impact appears to be minimal.”
Using corn as an example, the GAO said premium subsidy reductions of 5 and 20 percentage points in 2012 would have raised average production costs per acre by about $2.80 and $11.20, respectively. The increases would have been about 0.4 percent and 1.7 percent, respectively, of the total average production cost per acre of $656 that year for corn.
GAO said Congress should consider directing USDA to monitor and report on the impact, if any, of any reduction on crop insurance program participation.
The congressional watchdog said USDA had no comment on the report.
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