Crop insurance on the chopping block

Sep 23, 2011

Like clock-work, every five years Congress renews the farm bill, while lobbyists and lawmakers fight to save critical pieces that support the ag industry. But this year, to the surprise of many farmers and agriculture organizations, congressional drive for large savings is forcing early debates.

Last week, as part of his effort to reduce the federal budget deficit by $3 trillion, President Barack Obama added to the mounting tensions with a proposed end to $30 billion in direct payment subsidies, along with cutting $8.3 billion out of crop insurance.

His plan included a net savings of $33 billion that would come from agricultural programs over 10 years. Another $2 billion would be saved in conservation.

Add that up, and it’s a total of $40.3 billion in cuts to agriculture programs, if implemented. “It’s the math,” according to Obama.

“We reform agricultural subsidies, subsidies that a lot of times paid large farms for crops they don’t grow,” Obama said.

In the recommendations, the White House said the agriculture sector is doing better than many parts of the economy.

According to USDA, net farm income is forecast at $103.6 billion for 2011, up $24.5 billion for a rise of 31 percent from 2010. This reflects income from production in the current year, whether or not sold within the calendar year, and is a measure of the increase in wealth from production. The 2011 forecast of net farm income is the highest inflation-adjusted value recorded since 1974.

Net cash income, at $114.8 billion, is forecast up $22.5 billion (24.4 percent) from 2010, and $39.1 billion above its 10-year average (2001-2010). Net cash income reflects only the cash transactions occurring within the calendar year and is a measure of solvency, or the ability to pay bills and make payments on debt.

Net value added is expected to increase by $27.1 billion in 2011 to $157 billion.

With this information, according to the White House, the subsidy is “unnecessary,” because more than half of recipients have incomes above $100,000 a year.
In addition, the administration wants to raise farmers premiums. “..the program continues to be highly subsidized and costs the taxpayers $8 billion a year to run,” the White House said.
“Taxpayers continue to foot the bill for these payments to farmers who are experiencing record yields and prices; more than 50 percent of direct payments go to farmers with more than $100,000 in income,” according to the White House.
But the ag industry claims the math is not adding up, and is working on a new calculation for Obama’s math lesson long before the farm bill deadline.
House Agriculture Committee Chairman Frank Lucas of Oklahoma and Sen. Pat Roberts of Kansas issued a joint statement last Monday afternoon criticizing Obama’s plan,“…cutting $8 billion from crop insurance puts the entire program at risk.”
“Farmers know we need to balance the budget and are willing to do their part—but they have also made clear that one of the most important benefits they receive from the federal government is crop insurance, a public-private partnership,” said Kansas Sen. Jerry Moran. “We should be listening to those who know best and not drastically reducing support for such a vital program—which has already sustained significant cuts over the last five years. Given the devastating effects of the drought in Kansas and weather-related disasters across the country, the president should be supporting, not weakening, this important cost-share insurance program.”
“While NCGA agrees the fiscal challenges before us require even greater efficiency in the delivery of farm safety net programs, we are deeply concerned by proposals that would directly undermine a farmer’s ability to purchase adequate insurance coverage at a time of heightened volatility in commodity markets,” the National Corn Growers Association (NCGA) said in a press release.
In addition, farmers who happen to be millionaires will be subjected to Obama’s proposed “Buffett rule.” This rule increases taxes on the wealthy and cuts loopholes to increase revenue by $1.5 trillion over 10 years.
Faced with falling poll numbers, Obama demanded that a long-term debt-reduction plan must not cut future Medicare benefits without also raising taxes on the wealthiest taxpayers and corporations.
“Middle-class families shouldn’t pay higher taxes than millionaires and billionaires; that’s pretty straightforward,” Obama said. “It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett.”
With the severe drought and an eminent corn supply shortage, his concern over vulnerable Americans does not appear to include farmers.
“I will not support—I will not support—any plan that puts all the burden for closing our deficit on ordinary Americans. And I will veto any bill that changes benefits for those who rely on Medicare but does not raise serious revenues by asking the wealthiest Americans or biggest corporations to pay their fair share,” Obama said. “We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”
Prior to Obama’s speech with his new proposed cut, NCGA had unveiled their Agriculture Disaster Assistance Program (ADAP), a commodity title proposal for the 2012 farm bill to modify and replace the existing Average Crop Revenue Election Program and provide a more effective and responsive safety net for growers.
Despite Obama’s proposed cuts, San Willett, NCGA’s senior director of public policy, said that the program still addresses the need for simplification and elimination of overlapping coverage with individual crop insurance.
“This year is a classic example of why crop insurance is so important,” Willett said, referring to the drought across the southern Plains.
The big surprise in the proposed cuts was the crop insurance, which took hits in both the 2008 farm bill and the 2010 Standard Reinsurance Agreement, Willett added.
 “While today’s farm bill provides critical assistance to farmers when they face a significant loss, growers also need a program that can efficiently address gaps in protection that cannot be addressed by federal crop insurance alone,” said NCGA President Bart Schott. “ADAP will assist in streamlining those goals and ensure farmers are better protected when revenue is lost due to crop disease, volatile commodity markets, and adverse weather across multiple years.”
The ADAP program offers added risk management to farmers, along with advocating for a proportion of direct payments to be applied towards deficit reduction. “This is not about ag not doing its part for the deficit reduction, but instead about balance,” Willitt added.