Farmers need to justify fat insurance subsidy

By The Des Moines Register

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Farmers in the Grain Belt appeared to be magnanimous last year when they offered to give up direct payments from the federal government in discussions of the proposed farm bill. But a more thorough understanding of the farm subsidy programs suggests it wasn't much of a sacrifice.

Those payments were no longer necessary as long as corn and soybeans have been selling for record prices. But there's another, little-understood reason: Farmers are also protected by the federal crop insurance program not just from Mother Nature but from market downturns, too. Crop insurance has become the fastest-growing piece of farm support programs in recent years.

Traditional crop insurance protects against weather-related disasters. This year, for example, the insurance payout to farmers will set a new record. Insurance claims related to the 2012 drought have hit $18 billion and counting. That compares to average losses of $4.1 billion a year between 2003 and 2010.

The ultimate cost to the government of the insurance pay-outs will be less than the total losses. That's because private crop insurance companies will absorb part of the loss with income from insurance premiums and earnings. The government pays about 60 percent of those premiums.

This focus on the cost of crop insurance comes at an important time because Congress is once again debating a new farm bill. That legislation will set policy for a broad variety of agricultural programs, including federal subsidies to Midwest corn and soybean farmers and growers of rice, cotton and peanuts in other states. Crop insurance, which has become the farm lobby's favorite program, is central to the debate.

Critics question why only favored segments of American agriculture should be protected from the forces of nature and the marketplace while growers of other foods - let alone other businesses and industries - enjoy no such government subsidized protection.

Farmers can make the case that food is an essential commodity and that farmers need a safety net to protect them from catastrophic losses that could put them out of business. However legitimate that argument may be, it has been weakened by the fact that a sizable share of corn and soybean crops are diverted from food to fuel in the form of corn ethanol and soy-based biodiesel.

Even if you accept that Midwest farmers should be protected by taxpayer-subsidized insurance from weather-related disasters, federal crop insurance also protects insured farmers from market risk. It does that by making up the difference if market prices fall below the insured value of a commodity. The proposed farm bill passed by the House in 2012 would have made this type of crop insurance even more lucrative.

The idea of encouraging farmers to take more risk and put marginal land into production has raised concerns at a time when questions are increasingly being raised about the wisdom of taxpayers subsidizing farming practices that erode fragile soil and degrade water quality.

Last year's farm bill was derailed by the election and partisan budget bickering, but the collapse can also be explained by the fact that the power of the old “farm bloc” has been greatly diminished.

Increasingly, urban interests have a hard time seeing the need for taxpayer-financed farm support programs. That means farmers are going to have to work harder to make the case that taxpayer subsidies are needed and that those subsidies are not encouraging irresponsible farming practices.