Reboot Congress: A Look at the Farm Bill's Insurance Subsidies

Friday, July 13, 2012

A Look at the Farm Bill's Insurance Subsidies

The Heritage Foundation and Heritage Action are leading the charge to stop the 2012 farm bill. A good place to start for background on this legislation is The Heritage Foundation's policy paper Agriculture Policy Ripe for Reform.

Not only does the farm bill address agricultural subsidies, regulation, and insurance, but it also includes funding and policy changes to the food stamp program. As Heritage notes: "The tangle of corporate welfare, price controls, and import restrictions are downright perverse in an era of record-high farm income and a record-low ratio of farm debt."

In "The K Street Food Fight" Heritage notes the lengthy list of special interests that hope to receive subsides and regulatory favors from the government. With the US debt approaching $16 trillion, the country simply does not have the resources for more handouts. Yet, the Agriculture Reform, Food, and Jobs Act of 2012 (S. 3240) promises more of the same big government spending. As Heritage Action wrote:

Rather than reform, as the bill’s title implies, the Committee’s draft Farm Bill reinforces the heavy federal and taxpayer role in the farm economy. The Congressional Budget Office (CBO) estimates that the bill would save $35 billion over ten years compared to the ten-year baseline of $992 billion. The Committee shaved off a 3.6 percent whisker of spending from a bill that is 60 percent larger than the last Farm Bill.

The legislation introduces a new insurance subsidy program called "shallow loss":

Not only does the federal government subsidize 60 percent of a farmer’s crop insurance premium on average; it also pays insurance companies to administer the policies.[2] Crop insurance subsidies have increased substantially during the past two decades, rising from $200 million in 1991 to $5.4 billion in 2009.[3] Farmers can also draw on disaster assistance programs when extreme weather causes crop failure.

As the graph above illustrates, taxpayers are subsidizing farm insurance at a geometrically increasing rate. That's simply unsustainable in these lean economic times; however, that is not the only problem that the bill's insurance subsidies present. As AEIdeas observed, the new farm bill is likely to also be a trade disaster:

...annual subsidy payments of this size, coupled with an additional $7 to $10 billion in crop insurance subsidies, would clearly violate the United States’ WTO commitments and create enormous trade relations problems.