Unlike direct farm aid payments, which are capped at $40,000 per farm, there is no limit on crop insurance subsidies. The names of those receiving payouts from the program are kept secret. There’s little chance the program will be restructured, since a permanent insurance mechanism spares politicians from approving ad-hoc farm bailouts that CRS says have cost taxpayers more than $50 billion since 2000.
The heavily-discounted insurance incentivizes farmers to cultivate marginal acres that may or may not be fertile. And the program’s been vulnerable to fraud, notably in North Carolina where a network of insurance agents, claims adjusters and farmers bilked the government of close to $100 million over more than a decade.
“The crop insurance program is terrible budget policy,” says William Frenzel, a 10-term Republican representative from Minnesota who served on the House Budget Committee and now analyzes fiscal issues at the Brookings Institution. “It’s the kind of congressional back-scratching that got us into our debt and deficit situation.”
Risk Factor
This is the first in a series of articles examining the U.S. crop insurance program, which advocates say is essential to the nation’s food supply and critics assail as wasteful corporate welfare. Other installments will examine how private insurance companies benefit from public assistance, the record North Carolina fraud and the program’s impact on the environment.
Crop insurance, intended to safeguard farmers from natural disasters, has mutated into an income support mechanism that almost eliminates risk from agriculture, say critics such as Vincent Smith, a professor of agricultural economics at Montana State University.
When last year’s drought drove corn prices to record highs, farmers with “harvest price option” policies were paid those inflated prices for what they didn’t grow -- contributing to a record bill for taxpayers and record income for farmers. “There is no social justification for these subsidies,” says Smith. “This is a program that’s fundamentally designed to give money to farmers.”
Dustbowl Legacy
Federal crop insurance began in the shadow of the 1930s Dust Bowl, which scorched the soil and left farmers impoverished. Until 1980, when the government began paying about one-third of farmers’ premiums, few farmers participated.
In 2000, Congress made the subsidies more generous, so that farmers now pay only about 38 percent of their insurance bills or more than $4 billion in 2012. By last year, almost 1.2 million policies covering 282 million acres of farmland were in force.