Bloomberg News

Crop-Insurance Cuts Test Farm Power as Lobbies Push Back

October 16, 2013

Crop-Insurance Cuts Test Farm Power as Rural Lobby Pushes Back

A rural farm road outside Walnut, Illinois in 2012. The crop insurance program, which subsidizes payouts, cost a record $14 billion last year covering crops ravaged by the worst drought in at least five decades. Photographer: Daniel Acker/Bloomberg

Rural groups say they’ll fight a proposed $100 million-a-year cut in crop insurance subsidies, a measure that has won the support of both houses of Congress and could be a test of agriculture’s influence in Washington.

The House of Representatives has endorsed reducing the government’s portion of farmers’ insurance-policy premiums for higher-income farmers, following a Senate measure approved in June. Critics of what’s become the largest U.S. farm-aid program say the measure doesn’t go far enough, while supporters warn of ripple effects through the rural economy.

The proposed restrictions on insurance subsidies are “not a fait accompli, not by a long shot,” said David Graves, manager for the American Association of Crop Insurers, a trade group in Washington that says the insurance subsidies are a better way to aid farmers than disaster assistance relied upon in the past. “Our journey has been to establish a public-private partnership for the good of the nation.”

Crop insurance, now the most expensive farm-aid program, has gained attention from budget watchdogs as its price tag has risen. President Barack Obama sought this year to cut almost $12 billion from it over 10 years. Republican House Budget Committee Chairman Paul Ryan, who sponsored last week’s House resolution, has called subsidized insurance “crony capitalism.”

‘Small Step’

Curbing the rise in premium subsidies is a small step toward correcting the “ abomination” of the farm bill, said Andrew Moylan, a senior fellow for R Street Institute, a Washington policy analysis group that supports limited government. “We are at records or near records in farm incomes while we have huge deficit and debt challenges,” he said. “We need means testing for crop insurance.”

The crop insurance program, which subsidizes payouts at companies including Wells Fargo & Co. (WFC:US), cost a record $14 billion last year covering crops ravaged by the worst drought in at least five decades. Taxpayers provide the majority of farmers’ premiums, cover much of an insurer’s administrative costs and guarantee that losses will be covered.

The program’s structure will be determined in a multiyear agriculture law up for re-authorization. The farm measure pays for programs to encourage agricultural production as well as food stamps for the poor, benefiting processors including Archer-Daniels-Midland Co. (ADM:US) and grocers including SuperValu Inc. (SVU:US)

Conference Committee

The two chambers have passed different versions of the farm bill, which have to be reconciled by a joint committee. The biggest difference is funding for food stamps; the House proposes to cut $4 billion a year, 10 times the reductions called for by the Senate.

The Senate’s bill also included a measure to reduce crop-insurance costs. It would trim the government’s portion of farmers’ insurance policy premiums to 47 percent from 62 percent for growers with adjusted gross incomes over $750,000 a year, affecting about 20,000 producers nationwide. The House didn’t include those cuts in its version of the bill, but did pass the non-binding resolution urging its conference committee members to adopt them.

The program is popular among farm groups that see crop insurance as an efficient way to administer aid the federal government has long given farmers to mitigate weather and price risks. Even with the reduction in premium subsidies for higher-income farmers, overall federal insurance aid would increase at least $500 million a year over current levels because of other initiatives as lawmakers look at less-popular agriculture programs for savings.

The crop insurance program under current rules would cost $84.1 billion over 10 years, according to the Congressional Budget Office.

Big Vs. Small

Big farms should not be treated differently than small ones through income tests, said Representative Michael Conaway, a Texas Republican and member of the House farm-bill conference committee, when debating the House motion last week. “To restrict crop insurance in this way is, in my view, wrongheaded,” he said. “This effort will punish success.”

The cut to crop insurance underlies a larger question of whether farm-state lawmakers still have the clout to defend their interests, said Chuck Fluharty, president and chief executive officer of the Rural Policy Research Institute at the University of Missouri in Columbia.

“Agriculture and rural power has weakened” as rural policy has become wrapped into bigger partisan debates, he said. “You’ve seen the autonomy of the agriculture committee completely usurped by larger conflicts.”

Farm Lobby

Last week’s resolution still leaves House members free to negotiate from their original position, Tamara Hinton, spokeswoman for the House Agriculture Committee’s chairman, Republican Representative Frank Lucas of Oklahoma, said in an e-mail. Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat, did not comment on the House move.

Still, conferees may simply have to accept the crop-insurance cut to preserve other programs, said Mary Kay Thatcher, a lobbyist with the American Farm Bureau Federation.

“This puts them in a difficult position,” said Thatcher who said her group “strongly opposes” the restrictions. “But there has to be some reform, or the bill won’t move forward.”

Larger controversies ranging from food stamps and dairy subsidies to the relationship between insurance and conservation programs may make income tests “small fry” not worth fighting over if congressional leadership wants a change in policies, said Gary Blumenthal, chief executive officer of World Perspectives Inc., an agricultural consultant in Washington.

Restrictions on crop insurance aren’t assured, Moylan said, calling it “laughable” that farm-lobby power has waned. “It has never been easier in history to reform agriculture subsidies substantially, but we are not doing it,” he said.

Still, Moylan said “the long-term arc” is in favor of reform. “We have never had this serious reckoning before on farm programs,” he said. “If I take my anti-pessimism pill for a moment, there are encouraging signs.”

To contact the reporters on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Jon Morgan in Washington at jmorgan97@bloomberg.net


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