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Crop insurance, relief hits taxpayers on all sides

By   /   August 2, 2012  /   1 Comment

Ryan Ekvall | Wisconsin Reporter

EVANSVILLE — This summer’s drought decimated George Andrew’s corn crop. Even a good, soaking rain every day from now until harvest time won’t help.

This summer’s drought is hitting farm fields, but taxpayers could take the ultimate beating.

Thanks to the federal crop insurance program, however, Andrew won’t have to worry about making ends meet this winter. Instead, he can expect to be paid up to 85 percent of his past yield or price average — a nice sized check given recent years’ historically successful harvests.

“This crop isn’t going to get any better. I’ve got what I got,” the Evansville farmer said.

But Andrew can’t chop his corn now if he wants to collect crop insurance payments. He has to wait for a crop adjuster to come out to his field sometime in the fall, assess the yield and fill in the claim.

Only then can the Rock County farmer put his wheat down.

“If a producer had a field zeroed out, according to crop insurance, I’ve still got to leave strips,” Andrew said. “In my eyes, if I had a zero yield on this, I’d rather chop the whole thing off if I could come back to wheat, rather than wait.”

The idea seems financially sound — cut your losses from corn and try to recoup some of those losses next summer with wheat.

But the rules are clear in this waste-and-want-not system. Wisconsinites, therefore, should expect to see blighted fields of corn stand until late September, October and into November.

“This year from my customers, almost 100 percent of them will have a payable claim,” said Jessica Sarbacker, a crop insurance manager at Union Bank & Trust in Evansville.

Iowa State University economist, Bruce Babcock said crop insurance works to the advantage of some farmers over others.

“If you can manage the risk without a subsidy, crop insurance hurts your competitive advantage,” Babcock said. “It allows farmers to manage their risk with taxpayer subsidies. It helps those farmers who can’t manage risk.”

It’s too early to predict just how bad things are going to end up, but one thing appears clear. Taxpayers will pay billions of dollars to lend a helping hand, including to large-scale producers who collect subsidies even as they post record prices on their crops and land.

Tallying the cost

“There are areas like this where there’s not going to be much there. … There’s areas in the northern part of the state where you have pretty good corn,” said USDA Undersecretary Michael Scuse, who visited several drought stricken Wisconsin farms Wednesday.

USDA Undersecretary Michael Scuse assesses the poor corn crop at a Rock County farm.

Scuse said the USDA made policy changes to help farmers cope with the bad weather. They streamlined the disaster declaration process from three months to “about 25 days.” They’ve opened some previously restricted wetland reserves and waterways to haying and grazing. And they’ve reduced interest rates on emergency loans to 2.25 percent.

“We want to go out, we want to talk to the producers, we want to see what’s on their mind and just let them know Washington — we’re not just stuck in D.C. — that we do actually care about what is going on here,” Scuse said.

The USDA crop insurance program insures 264 million acres, 1.14 million policies, and $110 billion worth of liability on about 500,000 farms nationally.

The brunt of that program and its payments is paid for by taxpayers.

The Risk Management Agency, which manages the USDA crop insurance, subsidizes crop insurance premiums — through taxpayers — in two ways. First, the insurance company receives a taxpayer subsidy for administrative and overhead costs. Second, the RMA subsidizes part of the producer’s premium.

Taxpayers subsidize farmers and the 16 insurance agencies working with USDA for billions of dollars.

In 2011, taxpayer subsidies for farmers’ premiums equaled $7.42 billion, $3 billion more than farmers paid in premiums themselves, according to the Environmental Working Group, which tracks farm subsidies.

Subsidies for administration and overhead premiums for insurance agencies equaled $1.38 billion.

The taxpayer ends up subsidizing big farms and insurance companies more than the family farmer.

The top 10 percent of policyholders received more than 50 percent of premium subsidies last year. The bottom 80 percent of policyholders received 27 percent of premium subsidies.

More than half (50.3 percent) of all counties in the United States have been designated disaster areas by USDA in 2012, including 23 counties in Wisconsin.

Staying safe

Insurers have been insulated from the down years by keeping a higher proportion of underwriting gains — where premium collections exceeded insurance payments — and writing off a larger portion of underwriting losses.

Taxpayers, through the Agricultural Risk Protection Act, paid $22 billion to deliver $11 billion in net payments to farmers between 2000 and 2008, according to Iowa State University economists Bruce Babcock and Chad Hart in the 2008 Iowa Ag Review.

“Hence, the SRA is designed to have the government take on a portion of company losses when claims exceed premiums in exchange for companies giving the government some of their gains when premiums exceed claims,” the report stated.

While grain farmers and crop insurers are protected by taxpayers from much risk, other farmers get squeezed in the process.

With feed prices increasing, Brian Barlass said his dairy margins will fall because the prices of milk are set by the federal government.

“We can’t control milk price and a year like this — all of a sudden we don’ t have enough feed for our cows, so feed price is astronomical because of the shortage and milk price doesn’t compensate for that, so we’d be taking it on both ends,” said Barlass, who operates a 400-cow, 1,000 acre farm east of Janesville.

He said poultry and hog farmers have it worse.

“A marginal crop like this could be harvested in silage for cows — beef cows or dairy cows — but you can’t feed silage to hogs or to poultry. They eat just the grains. They’re the ones who are really going to have to shell out a lot of money for their feed for livestock next year.”

Add the taxpayer to that list, too.

Scuse pushed for movement on the long-stalled farm bill, delayed by political wrangling in large part over price supports.

The U.S. House of Representatives on Thursday passed a $383-million emergency relief package for livestock producers struggling under the historic drought.

“We need a farm bill today. We need it now,” Scuse said. “I got a lot of livestock producers out there that are hurting. We got a lot of grain farmers out there that are hurting.”

The question is, who picks up the check?


  • Brad

    It would be easier for the taxpayers to handle these subsidies, high prices, and emergency relief if people like Dale Schultz(R.I.N.O.) and Bob Jouch(dem.) and Obama(the other side) would get out of the way and let our businesses create good jobs for those taxpayers. It’s not too much to ask, you know.