With Crop Insurance Subsidies, Payments Surging, Lawmakers Take Notice

May 10, 2012 05:18 AM

It was just a matter of time before cost-conscious lawmakers took a look at the surging costs of the U.S. crop insurance program. And some international countries are also reportedly eyeing the program to see if the subsidies provide U.S. farmers unfair protection against foreign producers.

The latest focus comes from Sens. Tom Coburn (R-Okla.) and Dick Durbin (D-Ill.), who wrote a letter to the Senate Ag Committee urging cost-cutting moves for the program.

"As commodity prices have increased significantly in recent years, program costs also are growing at an alarming pace," the senators wrote. They cited a recent Government Accountability Office report that said imposing a $40,000 payment limit on premium subsidies could have saved taxpayers $1 billion in 2011 alone. The report also found, the senators wrote, that failing to impose some limits could contribute to an increase in land prices that would hurt small-scale farms and beginning producers. There are currently no payment limits placed on crop insurance payments, but that is expected to continue to be a topic in the year and years ahead, with veteran farm policy observers predicting it is only a matter of time before such payouts are capped.

"Let us be clear," the lawmakers wrote the Senate Ag panel: "Further reductions to crop insurance are not a reflection of opposition to the program. In fact, we would argue the opposite — it is critical to make good programs better to ensure they are performing as intended and are fiscally sound taxpayer investments."

A look at the following table shows why the two lawmakers and likely more ahead will note the growing subsidies for the crop insurance program, which pays up to 62 percent of a farmer's premium costs.

Indemnities paid out on 2011 crops have now hit $10.750 billion for the week ended May 7, still shy of the forecast mark of $11 billion.

Risk Management Agency (RMA) data shows the pace of growth in indemnities has slowed considerably with corn and soybeans posting the biggest increases on a weekly basis.

Risk protection (RP) policies remain the major source of indemnities, with $8.257 billion paid out so far with yield protection (YP) policies next at $1.110 billion. Actual production history (APH) payouts so far are at $716 million.

Here’s a look at the latest indemnities for key crops:

 05 10 12 Img2

For 2012 crop, RMA reported that producers now have a net 84.774 million acres compared to the full-year level of 265.405 million acres for 2011 crops. The pace for 2012 also is ahead of where things stood for 2011 crops at this point last year when net insured acres were listed at 82.329 million.

This underscores again why crop insurance has been cited by farmers as a key need for the next U.S. farm bill.

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