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Sunday, June 03, 2012

Its Time To Vote:  Should The Environmental Working Group Run USDA’s Crop Insurance Program?


Agriculture has a bad taste in its mouth for the Environmental Working Group (EWG), the Washington lobbying organization that several years ago published USDA’s list of farmers and the amount of money they each received in farm program payments.  EWG has been overtly working to eliminate direct payments, which are subsequently not being considered by either the House or the Senate to be included in the next Farm Bill.  And with that apparent victory the next target is crop insurance, the primary risk management tool that remains for farmers to be protected from the vagaries of the weather, markets, and political disruption of international trade.  EWG wants to tell the public how much money every crop insurance policy holder is getting in USDA subsidies in an effort to place a cap on farmer benefits.

The Environmental Working Group has partially released the USDA’s data on crop insurance policies and the amount of subsidy in each, but was not given the identities of the recipients because of an Act of Congress.  Railing against the Congressional decision, the EWG alleges that farmers with crop insurance “enjoy extraordinarily costly federal perks in the form of premium subsidies.”  EWG says, “U.S. taxpayers pick up an average of about 62 percent of the crop insurance premiums for farm businesses. Their share of these premiums has soared from $1.5 billion in 2002 to $7.4 billion in 2011. The subsidies go to large operators with no conservation strings attached to protect water and soil, no means testing, and no payment limit on how much a farm business can collect.”

With that statement, one can quickly discern the ulterior motives of the group, which has positioned itself with major metropolitan media as an authority on agriculture, much like the Humane Society of the US (HSUS).  But the current efforts of the EWG, within the current political and budgetary atmosphere of Washington, may have the ears of many members of Congress.  A particular objective that could have success is the call for a $40,000 limit on crop insurance premium subsidies to individual operations.  That will affect many Cornbelt farmers who have been adopting crop insurance as a primary risk management tool with the attractiveness of various revenue options and program flexibilities.  Congress authorized those at a time when it wanted to shift agricultural support programs toward participatory programs in which farmers share the cost of the premium with USDA; as opposed to direct payment or price support programs.

But that was not what the EWG wanted, so it used its best know weapon of embarrassing individual famers by telling their neighbors, their creditors, their fellow church members, and every complete stranger around the globe how much they benefited from the crop insurance program.  However, at this point the financial information has not yet been linked to names as has been the farm program payment information that was released.  But unlike that information, crop insurance premium subsidies are not actual dollars in one’s pocket, and are an ethereal benefit that most farmers will not realize the size of which exists.  Most farmers know what their premium is, which turns out to be 30% to 50% of what the actual cost is, as calculated by the USDA and the Government Accountability Office.  By the way EWG says 62% is the average subsidy paid by taxpayers.  In its financial analysis EWG says over 10,000 individual farming operations have received premium subsidies from $100,000 to over $1 million.  On the other end are 389,494 operations which received $5,000 or less in premium subsidies, and which EWG calls the “bottom 80%.”

To get in that group, Kansas State University risk management specialist Art Barnaby says most farmers would be surprised to know they are the “big farmers” being attacked by EWG.  At some of the higher coverage levels for crop insurance, Barnaby says 75% coverage level of revenue protection would put a Kansas wheat farmer over the $5,000 mark at the 192 acre mark, and the same for an Oklahoma wheat farmer at the 176 acre mark. He says those would be part time farmers, semi-retired farmers, or small investors.  Looking at the EWG tables, Barnaby says, “The average number of acres to reach $5,000 was only 223 acres. It should be obvious that this size of grain farm cannot fund a combine that will exceed $400,000 in price plus the header. Grain farmers need size and scale to be efficient.”

Working the calculation backward, Barnaby says the proposed $40,000 payment limit would be reached at the 1,700 acre level as an average, depending on crop, state and type of coverage.  He said that is the middle-sized grain farmer who takes out buy-up policies, and if they are over the $40,000 limit, then they would be billed for the additional premium.  That could not be determined in advance because premiums and premium subsidies change annually because of the floating nature of crop insurance and the pool of farmers who are investing into it will change annually.

Barnaby is alerting Congress and policy makers of the danger of adopting the EWG proposal.  He says if the larger farms using crop insurance were to be removed from the policy premium pool, they are taking out the 20% of farms that produce 80% of the food.  As a result, Barnaby says the result will be the opposite of what EWG wants, “Many farmers will cut their crop insurance coverage level to remain under the subsidy limit. This will cause more large farms to move to CAT coverage, especially with the reduction in CAT rates that the Senate Bill requires.  This effectively is the same policy as providing the bottom half of coverage free and pay full premium for coverage above 50%.”

But so much for the thoughts expressed here…what is your opinion?  Cast your vote and tell everyone why in the comment box below.  Submissions are subject to prior approval before being published, but every reasonable comment will likely be approved. 

Crop insurance is under attack by the same group that released names of recipients of farm program payments, and fought for the elimination of direct payments.  The Environmental Working Group is lobbying to identify the names of all farmers who use crop insurance and indicate the amount of the total premium subsidy.  The group also wants to cap subsidies at $40,000 which would be a medium sized grain farm, but could vary widely depending on crop, state, and coverage level, as well as year.  Such action could force farmers to abandon the buy-up insurance, rely upon CAT coverage, and end up being a larger expense to the USDA in times of crop failure.

Posted by Stu Ellis on 06/03 at 11:39 PM | Permalink


Wouldn't a limit of $40k on crop insurance be good for family sized farms? I think it would increase risk of the megafarms who farm on volume alone and make folks think twice before going the IFF route. Our rural communities are dying because of mega farms and the population loss they cause. How can we justify having our neighbors who live in town and make $25k per year pay us essentially welfare money when the average crop producer is making $250k per year? I have to side with EWG on this one.

Posted by: Ed at June 4, 2012 11:11AM

I think that the limitation they are looking at (or any for that matter) is not productive at all. Why should we put limits on or penalize productivity and efficiency? However I can be sympathetic to the charge that these premium are not tied to conservation programs as the direct payments are. It seems reasonable to require FSA sign-up to qualify for the premium. Further I think annual statements of benefit (best served at tax time) would be a valuable piece of information so producer do realize the level of indirect support they are receiveing. But I also think employees should be required to get and read the costs of their employment; unemployment, employer half of FICA, workers comp, administrative costs, etc...

Posted by: David Cook at June 4, 2012 6:06PM

The information EWG receives from the USDA is misleading. Some of the recipients are landowners who actually receive 100% of those dollars. Others are crop share or cash rent farmers whose net share of those dollars may vary with contractual agreements. My cash rent landlords release their share of the direct payment to me but adjust the cash rent accordingly so they dont't have to mess with all the paperwork at the FSA office. EWG will screw up reporting crop insurance too.

Posted by: David DIekhoff at June 5, 2012 12:12AM

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