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Crop insurance has become a taxpayer ripoff May 26, 2012 It's hard to imagine a duller subject than crop insurance, and that suits the farm lobby just fine. If the facts about the billions of taxpayer dollars being wasted on this boondoggle were widely known, no one would stand for it. Perhaps because it's poorly understood, crop insurance is on the verge of being expanded in the 2012 Farm Bill. Lawmakers evidently see it as a way to stuff more money into the pockets of favored constituents whose pockets already are overflowing. Unlike practically every other sector of the economy, farming is awash in profits. The embarrassment of riches has made it difficult to justify any of the usual farm subsidies, especially in light of runaway budget deficits. Big agriculture and its supporters have settled on crop insurance as the means to keep federal dollars flowing. It's not too late to stop it. You might assume that crop insurance is designed to insure farmers against a poor crop. Not so. More than 80 percent of crop insurance protects farm revenues, regardless of crop yields. No drought or flood or plague of locusts is required for the policies to pay off. A farm might have a bumper crop, but if commodity prices fall short of its projections, it still could be eligible to collect on its crop insurance. The coverage can be used to guarantee that these private businesses lock in a profit. Any business would love insurance like that, but it would be unaffordable. It would be too expensive for farmers too, were it not for Uncle Sam. The federal government heavily subsidizes crop insurance. So farmers sign up for top-of-the-line policies that cost much more than they would spend if they had to pay for it themselves. Over the past decade, taxpayers have committed $60 billion to crop insurance, according to an Iowa State University analysis. Of that money, about $30 billion was paid back to farmers who collected on their policies. The rest went to private insurance companies and their richly compensated agents. So $1 is being siphoned off for every $1 in net benefits delivered. That amounts to a $30 billion windfall for the crop-insurance middleman. It came from you, taxpayers. You're being ripped off. The scale of the ripoff is growing year after year. In 2002, the federal government spent $1.7 billion on crop insurance premium subsidies. By 2011, it was spending $7.4 billion. Crop insurance has become America's biggest farm subsidy. Last month, the Senate Agriculture Committee approved a 2012 Farm Bill that would expand crop insurance. Among the goals: Cover the deductible that farmers now have to cover themselves before collecting on their policies, and add a new crop-insurance program for cotton growers. The Iowa State analysis showed that crop insurance already is so costly that it would be cheaper for taxpayers to give it away. We're not recommending that government give any business free insurance. But the facts reveal just how much money is being wasted: By cutting out the middleman, the government could furnish every row-crop farmer in America with free insurance in the event yields fall short. The policies would not guarantee revenues. They would cover crop losses, at the full market price — providing the robust "safety net" that farmers claim is all they ever wanted. Compared to the current system, handing out yield insurance would save taxpayers $6 billion over 10 years. It would deliver $5.6 billion more in benefits to producers over the same period, the Iowa State report calculated. Besides wasting taxpayer money, agricultural subsidies like crop insurance distort the marketplace and ultimately weaken American agriculture. When government shields an industry from the consequences of market forces, it creates what's called "moral hazard." We've seen it in banking: Traders were encouraged to make big bets that enriched them when they paid off, and led to federal bailouts when they didn't. When crop insurance guarantees a profit on every planted acre, farmers face moral hazard too. The excessive coverage tends to reward poor land stewardship, conservation abuses and insurance fraud — problems that would barely exist if farmers had to personally bear more risk. A few senators have proposed limits on crop insurance, including Sen. Dick Durbin, the Illinois Democrat, and Sen. Tom Coburn, the Oklahoma Republican. They are expected to offer an amendment that would cap the total amount of premium subsidies a single farm would receive. We support their efforts, and urge lawmakers in the House, who are still formulating their version of the Farm Bill, to do a better job protecting taxpayers and saving a pampered industry from itself. |