NU Online News Service, May 17, 12:20 p.m.EDT

WASHINGTON–Officials from the crop insurance industryare voicing opposition to a proposal by an Iowa State Universityprofessor that the current system be replaced with a direct subsidyprogram.

In testimony Friday before the House Agriculture Committee at ahearing on the proposed 2012 farm bill, Professor Bruce Babcockproposed the direct subsidy program as less costly than the currentsystem.

The professor said he believes that providing revenue protectionto farmers from systemic risk by using an area-based revenue planwould be far less expensive than the current system.

But officials of the National Crop Insurance Services, OverlandPark, Kan., the trade group for the private insurers that operatethe program, criticized Professor Babcock's proposal.

"One question is how to pay for the substantial additionaldelivery costs involved in simply giving this program to everyproducer," a NCIS official said.

"Farmers consciously make a decision to manage their risks whenthey choose to participate financially in crop insurance, which isin great contrast to the professor's suggestion," he noted.

Other major issues with the plans are that they don't protectfarmers from individual losses, nor do they work well particularlyfor farmers who do not grow conventional field crops, said LaurieLangstraat, an NCIS official.

The plan proposed by Professor Babcock would, like the currentfarm subsidy programs probably covering all producers, be 100percent subsidized and make a payment when actual county revenuefalls below a target revenue, Ms. Langstraat said.

This is similar to a new prototype program called ACRE,implemented through new farm legislation.

Professor Babcock's concern is that the cost of the currentsubsidized private insurance program is too high.

The NCIS official said the crop insurance program has costtaxpayers $37 billion since 2000. Of the $13 billion in supportover the last two years, more than $7 billion flowed tocompanies.

Farmers, he said, received indemnity payments (net of premium)totaling $4.5 billion in 2008 and $1.5 billion in 2009.

A large proportion of the 2008 net payments came about becausethe price guarantees were so high that even the modest price dropsseen in 2008 generated a number of indemnity payments, he said.

As Professor Babcock explained in his testimony, under hisprogram, farmers would use crop insurance only to insure theirindividual risks beyond the risks covered by the area plan.

"Nobody should begrudge farmers" their indemnity paymentsbecause they were made as a result of an insurance contract, "butshould the government really be in the business of running aprogram that makes payments to farmers even when farm income is atan all-time record high?" Professor Babcock asked in histestimony.

"If the price drop in 2008 had not occurred, then the cropinsurance industry would have been paid an additional $2 billion in2008 to run the program," he testified.

"It just does not make sense to see such a large portion of farmprogram costs flowing to a middleman," he said.

The issue is being raised as NCIS negotiates with the RiskManagement Agency, a bureau at the Department of Agriculture, on aStandard Reinsurance Agreement for the companies that are membersof NCIS.

The RMA has proposed major cuts in the current subsidy and theNCIS has been negotiating to narrow the differences since January.The two groups hope to come to an agreement by mid-June.