A new report takes issue with the current structure of the federal crop insurance program, arguing that in many cases it allows growers to make more money from insurance payouts than they would from a healthy harvest.

This is particularly so for the industrial-scale operations which have been enjoying record profits, says the report by Bruce Babcock, a professor of economics at Iowa State University.

Babcock's report, commissioned by the Environmental Working Group (EWG) in Washington, was released a day after the U.S. Dept. of Agriculture (USDA) released one of its own, showing that the cost of the nation's crop insurance program rose to a record $17.2 billion.

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

Babcock's report "adds to the growing evidence that common sense reforms to crop insurance would save billions of dollars while still providing a solid safety net, cutting the deficit and investing in programs that improve human health and the environment," Cox says.

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

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

Cox interprets Babcock's report to mean that over-generous subsidies have turned crop insurance into more of a farm income support program than a risk-management program. Moreover, Cox says, the report shows that taxpayers could provide farmers with a secure floor under their finances for less than half of what the current program costs.

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

There are now 17 insurers in this market, led by Wells Fargo and Ace Ltd. The market has consolidated since 2008 as the federal government moved to cut subsidies it provides the program, but Starr International and XL, based in Dublin, Ireland have recently joined the list of underwriters in this market.

The Babcock report says low farm yields in Corn Belt states due to the 2012 drought led to the highest crop insurance payouts in history. The $17.2 billion payouts constitute an almost 50 percent jump 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 2012 insurance 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 Senate or House Agriculture Committee farm bill proposals from last year were to become law, taxpayers would be asked to pay even more for crop insurance, while funding for conservation and nutrition programs went under the budget knife.

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

Special Reports /

As Federal Crop Insurance Costs Rise, Report Questions Effectiveness

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