Crop insurance subsidizes big financial firms, not just farmers

The House and the Senate have not yet agreed on a Farm Bill, but both houses of Congress propose to shrink the role of traditional crop subsidies and expand the role of crop insurance.

Crop insurance may sound like a good thing, because it brings to mind an image of market-oriented insurance instruments that ameliorate the production and price risks of farming, much like automobile insurance spreads the risk of using automobiles.  However, the reality is far different.  Rather than merely facilitating insurance markets with actuarially fair premiums, federal crop insurance policies use taxpayer money to subsidize large for-profit insurance companies.

A report by David Lynch in Bloomberg last week explains:

The government subsidies show how a program created to safeguard the nation’s farmers has evolved into a system that in most years all but guarantees profits for insurers. In 2012, taxpayers spent $14 billion paying more than 60 percent of farmers’ insurance premiums, the companies’ operating costs and the lion’s share of claims triggered by a historic drought, according to the Congressional Research Service (.pdf).

Senate Agriculture Committee hearing on "Drought, Fire, and Freeze"

The Senate Agriculture Committee yesterday held a hearing on disasters and agriculture policy. The slew of disasters in the last year are related both to crop insurance issues and environmental constraints on food production. The hearing website includes video and testimony from USDA chief economist Joe Glauber, NOAA director Roger Pulwarty, and several farmers and ranchers.

There is good related news and commentary from the National Sustainable Agriculture Coalition (NSAC), AgriPulse, and Keith Good.

NSAC writes:

The witnesses discussed a variety of conservation programs including the Conservation Stewardship Program (CSP), Environmental Quality Incentives Program (EQIP), and Farm and Ranch Land Protection Program (FRPP). Ben Steffen, the diversified crop-livestock producer from Nebraska, noted that his CSP contract has been instrumental in helping him change his tillage practices and establish cover crops on his land. His extensive cover cropping has helped retain moisture and soil throughout the ongoing drought. The producers from Michigan, Indiana, and Montana each noted specific conservation practices, such as no-till, cover cropping, buffer strips, and irrigation improvements that built resiliency into their operations and helped them respond to droughts, floods, freezes.