An insurance provision in the U.S. farm bills proposed by theHouse and Senate could have corn, soybean, and wheat farmers makingmore money in a bad year, such as during a drought, than in a goodyear, an environmental group said on Thursday

In a 20-page report, the Environmental Working Group criticizedthe proposed Supplemental Coverage Option (SCO), which is in boththe House and Senate versions of the Farm Bill, claiming it wouldhave increased crop insurance payments during last year's droughtby $6.8 billion on top of the record $17 billion that was paidout.

A corn farmer in central Illinois during that drought would havehad crop revenue of about $1,300 a acre, or $200 an acre more thanhe had expected at planting time, said agricultural economist BruceBabcock of Iowa State University.

SCO payments would be "windfall gains" on top of traditionalpayments and revenue from crop sales, making it unnecessary, saidBabcock, a crop insurance expert who wrote the report for the"green" group.

"The best year they ever had (financially) would have been theirworst year in terms of drought," said Babcock.

The Environmental Working Group works to gain more funding forconservation and small-farmer programs.

There would be a "substantial" SCO payout this year due to lowermarket prices and yield damage in the western Corn Belt and U.S.Plains, he said, although the corn crop is forecast to berecord-large and soybeans the fourth-largest ever.

EWG said the SCO could cost more than the $5 billion-a-yeardirect-payment subsidy that it would replace. Farm-state lawmakerssaid they would end the direct payment as part of farm subsidyreform. 

FARM COUNTRY SUPPORTS CROP INSURANCE

Farm groups gave priority to strengthening cropinsurance  in the pending farm bill. Farmers pay premiumsevery year but collect only in bad times, say defenders of thetaxpayer-subsidized system.

The House and Senate still must agree on a final compromiseversion of the Farm Bill.

"Yet another one-sided and slanted 'report,'" said the tradegroup National Crop Insurance Services about the EWG report.

It said the report used "the extreme and unrepresentative" 2012drought along with unrealistic commodity prices to arrive at aninflated price tag, rather than look at likely performance overgood and bad years. 

Crop insurance is the largest part of the farm safety net. Cropinsurance spending was forecast to increase by up to 10 percentover the coming decade, to around $10 billion a year, in farm billspassed by the Senate and House of Representatives.

The SCO would be a county-based revenue policy that would coverthe gap between a farm's individual insurance coverage and 90percent of projected crop revenue. The government would pay 65percent of the premium and there would be no limit on payments.

The Senate would require growers to practice conservation toqualify for crop insurance subsidies and have growers with morethan $750,000 a year in adjusted gross income pay a larger share ofthe premium. Neither proposal is in the House bill.

SCO would trigger payments more often than other so-calledrevenue programs proposed in the new farm bill, said analysts KeithCollins and Harun Bulut in the economics journal Choices.

Iowa State's Babcock said a simple reform would improve SCOdramatically. Revenue guarantees should be based on prices expectedat planting time rather than harvest, he said. Prices rise sharplywhen crops are bad, creating an offset for poor yields.