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Senators: Crop insurance isn't making farmers rich
By TIM ALEXANDER
Illinois Correspondent

WASHINGTON, D.C. — The nation’s farmers and ranchers are not getting rich from agricultural disasters and crop insurance, as implied by an Oct. 16 Washington Post feature, according to senators from South Dakota and Illinois.

The senators agree, however, that the nation’s crop insurance program needs to be scrutinized.

The Post story, authored by three reporters, suggests farmers nationwide are “double-dipping” when receiving both disaster aid and crop insurance payments for the same disaster. It also states that niche insurance companies have made billions in profits from the federal crop insurance program, even as the government has lost billions covering claims. The story seems to strongly suggest the federal crop insurance program is in dire need of overhauling.

Speaking to the Rapid City Journal, Sen. Tim Johnson (D-S.D.) said farmers have received a combination of crop insurance payments and disaster payments; but that together, they amount to less than the total crop loss, as stipulated by law if the crop has been harvested and sold. Johnson also stated that livestock producers in his state rely heavily on crop insurance when being forced by drought to either sell down their herds, purchase expensive hay or both.

“For a lot of western South Dakota, disaster aid is all the aid that there is,” Johnson told reporters. “And that is very unpredictable and, frankly, political.”

His comments were supported by Sen. John Thume (R-S.D.), who said that anyone who has seen first-hand the devastating effects of recent droughts in South Dakota knows farmers and ranchers are not getting rich from disaster relief.

“(Disaster relief) is a necessary lifeline that helps them to survive conditions that destroy their crops and put their families’ livelihoods at risk,” Thume said.

Johnson admitted the current federal crop insurance program is in need of examination, and that he hoped a better system for cushioning the blow from disasters could be developed in the 2007 farm bill.

Illinois State Sen. Donald Moffitt (R), a farmer in the state’s 74th District, said farmers definitely need access to a federal crop insurance program.

“What troubles me is that the federal government is spending many times more than what farmers are receiving in benefits,” Moffitt said “Direct payments to farmers would reduce the cost to taxpayers and could increase the benefits for farmers. One concern of mine (is that) it appears that providers are working to keep competition out of the system, so taxpayers are carrying the extra costs.”

According to the Post article, in 2002 Congress quashed an idea by insurance company Crop 1 to introduce competition in federally subsidized crop insurance policy sales by offering farmers discounts of up to ten percent on their premiums.

This episode, the Post article implies, illuminates the power of the niche insurance companies in keeping the status quo in a misguided system that disallows competition.

In 2005, the insurance companies made $927 million in profit, a record, on top of an additional $829 million from the government in administrative fees. Taxpayers also kicked in $2.3 billion to help subsidize premium payments to farmers, yet only $752 million was paid to farmers for crop loss from bad weather. For every dollar paid out in claims to farmers, it cost the government $3.34, the Post reported.

“We would probably be better off just giving the farmers the money directly,” said Bruce A. Babcock, an agricultural economist at Iowa State University who has published a study on the program, to the Post.

To read the entire Post article, see its website at www.washingtonpost.com and do an archive search using the keywords “crop insurance” or click on “Oct. 16” on its archive calendar. The article is titled Crop Insurers Piling Up Records.

Sources: WashingtonPost.com, Rapid CityJournal.com, Illinois State Sen. Donald Moffitt.

11/1/2006