By STEVE BINDER
Illinois Correspondent

WASHINGTON, D.C. — As Congress and the White House work toward a resolution regarding the country’s debt limit, farm programs overall are targeted for some reductions, including for crop insurance subsidies and disaster aid.
“Crop insurance is now the biggest user of taxpayers’ dollars of all the programs targeted toward farmers,” said Vincent Smith, a professor of agricultural economics at Montana State University. “Last year federal subsidies for insurance totaled about $6.5 billion, out of a total for all programs of about $18 billion.

“It’s a politically appealing program … but most of the people this program helps are well-incomed people, those with 3.5 times the national average.”
Smith was one of several ag economists who spoke during a teleconference on the 2012 farm bill, sponsored by the American Enterprise Institute for Public Policy Research, a think tank based in Washington, D.C., that routinely has called for farm program changes or cuts.

A total of 12 research papers were released for review, and are available at www.aei.org/americanboondoggle including topics such as biofuel, conservation programs and disaster aid.

Smith’s paper states crop insurance is the heftiest of all farm programs, with about $5.6 billion average annual payments going out since 2007. One key problem, he said, is where those payments go.

About 58 percent of those expenditures went to agricultural insurance companies and agricultural insurance agents. Since 2005, on average, the agricultural insurance industry has received $1.44 for every $1 farmers have received in crop insurance subsidies, Smith wrote.

“At the very least, we could save about $1.5 billion a year simply by rolling back the reimbursements to insurance companies back to 2000 levels,” Smith said.

The program, overall, is biased in favor of farmers who need it the least, he opined. “It’s an unfair program which gives more benefits to larger farm operators than smaller farmers.”

While not as expensive to the country, disaster aid each year to farmers should also be cut back in large part because the need for aid in some cases is not significant, said Myles Watts, also an ag economist at Montana State.
Under the 2008 farm bill, five permanent disaster aid programs were established; he said the main one, the Supplemental Revenue Assistance Payments (SURE), ought to be significantly changed to lower the estimated $2 billion in aid given to farmers in 2008 alone.

That total was nearly four times what experts predicted it would be, Watts wrote.

“It is essentially an add-on to existing federal crop insurance programs, which are already heavily subsidized and provide many crop producers with an extensive, publicly funded safety net,” he wrote. “The SURE program links disaster aid payments to a farmer’s choice of crop insurance coverage, and indemnity payments are triggered by yield losses. The effect is to reduce most farmers’ crop insurance deductibles, increasing moral-hazard incentives.”
A positive change would be to limit which areas are declared disaster areas, he said, noting that farms in counties adjacent to counties already declared disaster can qualify for aid.

“More rigorous, binding conditions should be established for the secretary of agriculture to declare counties natural disaster areas, reducing the frequency with which farms become eligible for SURE payments,” he said. “Removing the eligibility of farms in counties adjacent to declared disaster areas and raising the minimum production-loss requirement could improve the effectiveness of the program to provide assistance to farms truly suffering unexpected, catastrophic losses.”