A new report takes issue with the current structure of thefederal crop insurance program, arguing that in many cases itallows growers to make more money from insurance payouts than theywould from a healthy harvest.

This is particularly so for the industrial-scale operationswhich have been enjoying record profits, says the reportby Bruce Babcock, a professor of economics at Iowa StateUniversity.

Babcock's report, commissioned by the Environmental WorkingGroup (EWG) in Washington, was released a day after theU.S. Dept. of Agriculture (USDA) released one of itsown, showing that the cost of the nation's crop insuranceprogram rose to a record $17.2 billion.

Craig Cox, EWB vice president for agriculture and naturalresources, says, "Babcock's conclusions should be a wake-up callfor taxpayers and the senators and representatives in Congresscharged with creating a more fiscally-responsible safety net."

Babcock's report "adds to the growing evidence that common sensereforms to crop insurance would save billions of dollars whilestill providing a solid safety net, cutting the deficit andinvesting in programs that improve human health and theenvironment," Cox says.

But, thus far, "the subsidy lobby has managed to pushCongress in the opposite direction," he adds.

The Babcock report was issued in an apparent attempt toinfluence the direction of the 5-year farm subsidy reauthorizationlegislation that is now being debated in Congress.

Cox interprets Babcock's report to mean that over-generoussubsidies have turned crop insurance into more of a farm incomesupport program than a risk-management program. Moreover, Cox says,the report shows that taxpayers could provide farmers with a securefloor under their finances for less than half of what the currentprogram costs. 

The USDA says drought was a major factor in the increasing costof the program, and more than 60 percent of the payoutsunder the program are covered by the government.

There are now 17 insurers in this market, led by Wells Fargo andAce Ltd. The market has consolidated since 2008 as the federalgovernment moved to cut subsidies it provides the program, butStarr International and XL, based in Dublin, Ireland have recentlyjoined the list of underwriters in this market.

The Babcock report says low farm yields in Corn Belt states dueto the 2012 drought led to the highest crop insurance payouts inhistory. The $17.2 billion payouts constitute an almost 50 percentjump from the then-record $10.8 billion paid out the year before,Babcock says.

"Taxpayers will bear the burden of almost 75 percent of the 2012insurance payouts; and since 2001, insurance companies have enjoyed$10.3 billion in underwriting gains – while taxpayers have lost$276 million," the Babcock report says.

In his analysis, EWG's Cox says that if either the failed Senateor House Agriculture Committee farm bill proposals from last yearwere to become law, taxpayers would be asked to pay even more forcrop insurance, while funding for conservation and nutritionprograms went under the budget knife.

"Congress should and could do far better as it takes up the farmbill again this year," he says.