What agriculture needs from government is infrastructure development, reasonable target prices, sensible regulation, reasonable trade policies, and, yes, crop insurance. In the recent farm bill the emphasis was certainly on crop insurance. The innovation of government backed revenue based crop insurance is an American success story. Other countries are trying to imitate our programs. That said, these increases in what should be an austere budget environment are inappropriate.
Cut food stamps/Increase crop insurance
If we farmers want farm programs and food stamps combined in the same “farm bill”, then we have to be willing to live with that juxtaposition. Raising the crop insurance title 5.7 billion(+6%) while cutting the nutrition title 8 billion (-1%) is hard to support with a straight face. There were justifiable adjustments to the way SNAP was operating. (States were gaming the program by giving token heating assistance to households ($1) solely to make them eligible for food stamps -” heat and eat”.) But farmers didn’t need the 5.7 billion “strengthening” of already adequate and functioning crop insurance. (More than 1/2 of this increase is for cotton farmers.)
Two add-on insurance options (subsidized) have been added under the insurance title. Selling federal crop insurance is apparently lucrative enough that insurance companies are scrabbling to couple their own coverage innovations with federal crop insurance to entice farmers to buy federal crop insurance from them. This is great. This is American free enterprise at its best. So why does the federal government need to add two optional, subsidized policies when private insurers are looking to differentiate themselves by offering private add-on options?
No caps on crop insurance subsidies
[For a detailed discussion of insurance caps, see Darrel’s opinion piece published in Illinois Farmer Today, June 7 2014]
The farm bill did not cap crop insurance subsidies. Crop insurance premium subsidies should be capped somewhere around $50,000 per farm operator. This is about a 3,000 acre corn/soybean operation (assuming Harvest Price Exclusion). Why should a large farmer’s premium on his 10,000th acre be subsidized at the same level as a beginning farmer’s 500th acre? We have state and federal programs to help beginning farmers enter capital intensive production agriculture. However, unlimited crop insurance premium subsidies work at cross purposes with these programs. One partly cancels out the other.
Unlimited premium subsidies make large farm operations more feasible since large operations are often narrower margin operations. Part of those subsidies get capitalized into cash rents and farmland values (i.e. market distorting). We live in “free enterprise” America. If a person wants to grow and expand, “Go for it!” But beyond a certain level, pencil in the full cost of crop insurance in your calculations. A more equitable program would give every grower access to a limited level of insurance subsidies. (This is how the Milk Income Loss program worked for dairy farmers. A farmer had a price floor on up to 2.9 million pounds of milk production. Above that, he was subject to the prevailing market price.)
The criticism of this reform is that it jeopardizes crop insurance for everyone by making crop insurance a less attractive purchase and thereby potentially shrinking the risk pool. To be sure, the more participants you have, the more actuarially stable an insurer’s predictions can be. But we are not talking about a few thousand acres of apples or peppermint. Last year farmers insured 134 million acres of corn and soybeans. This sounds like grasping at straws to oppose capping premium subsidies. ( Also see this column by Senator Charles Grassley in Politico. http://www.politico.com/magazine/story/2013/12/reforming-food-stamps-yet-coddling-millionaires-100737.html)
Ineffective payment caps
Why did Senator Grassley vote against the farm bill?
Both the House and Senate bills had reforms to limit the number of farmers who can receive payments from one farm. These reforms more narrowly defined “actively engaged”. (We have all seen the Environmental Working Group’s maps with dots throughout Chicago and Washington D.C. indicating the residences of farm subsidy recipients.) These “hard cap” reforms were nullified in the conference committee. Senator Grassley has worked for years to reasonably cap farm program payments. This is another uncomfortable farm bill juxtaposition: Loopholes for food stamp recipients are closed without addressing rules that allow nonfarmers to get large payments. (Again, it is my impression that most of the opposition to payment caps came from Southern farm interests.)