Ag Policy Blog
Chris Clayton DTN Ag Policy Editor

Friday 09/13/13

Crop Insurance Industry Takes Some Punches

We're supposed to be in the latter rounds of the fight over the farm bill. Another round will come next week as could come next week as the House of Representatives takes up its nutrition bill, which could cut as much as $40 billion from those programs.

Crop insurance can expect to take more body blows, but the industry and insurance program was on the ropes this week absorbing body shots as Bloomberg News rolled out a series of articles critical of crop insurance. The articles centered around a $100 million fraud case in North Carolina. The articles then elevated to imply that the entire crop-insurance program is a "money-laundering operation," as one critic put it.…

The insurance industry pushed back. Tom Zacharias, president of the National Crop Insurance Services, lashed out at the Bloomberg reports.

“Over the last decade, elected officials, financial institutions, farm leaders and farmers have reached a general consensus that crop insurance is the best risk management tool available. That conclusion was reached because crop insurance reduces the risk exposure to taxpayers while requiring farmers to purchase policies with their own money before enjoying the relative protection of insurance. In short, it forces farmers to manage risk before, not after it happens, which saves taxpayers money.

Zacharias added, “The factual errors, blatant omissions and obvious bias in this series were stunning and it is unfortunate that the editors of Bloomberg News agreed to release these stories publicly. It was a great disservice to their readers and a personal insult to the hardworking farmers and ranchers of this nation.”

On Thursday, Rep. Ron Kind, D-Wis., was the lead speaker at a press event on Capitol Hill to again push for more cuts to crop insurance. Kind argued the rate of return for crop insurance firms, pegged at 14%, is too high.

"We're asking these crop insurance companies to put a little bit of their skin in the game too, so it's not all on the taxpayer back," Kind said.

Kind's arguments aren't much different from those made by both House Budget Chairman Paul Ryan, R-Wis., and the White House. The Obama administration has repeatedly proposed cuts to crop insurance. The administration thinks the rate-of-return for crop insurers should be cut to 12%.

Kind and Rep. Tom Petri, R-Wis., introduced a bill earlier this year to cap crop-insurance premium subsidies at $40,000 per individual and lower the AGI eligibility cap for premium assistance to $250,000.

As part of the press conference, the Public Interest Research Group, known as PIRG, also submitted public petitions with 278,000 signatures "calling on Congress to end subsidies to large agribusinesses." The argument is that farm programs lead to growing crops "that end up in junk food ingredients like high fructose corn syrup" as part of the farm bill.

What most farmers and others should take away from that presser is that not even a handful of congressmen chimed in to join it.

Some groups, such as the National Farmers Union, support tying conservation compliance to crop insurance as a condition for being eligible for premium subsidies.

A Bloomberg reporter was on the company's TV network declaring crop insurance is a program "that doesn't take advantage of the modern financial system that has a well-developed derivatives markets to help farmers manage their business risks." The reporter and the TV reader interviewing her both came off as somewhat condescending.…

What is happening with crop insurance should be expected. For more than a decade, direct payments have taken the beating in farm policy debate as everyone noted that people collect direct payments regardless of price or circumstance. Crop insurance, however, does require both a farmer share of the premium and some form of financial loss to generate a payment. But as sparring takes place on the House floor over cutting SNAP by $4 billion a year, defenders of crop insurance can expect to look and act much like the guy on the mat in mixed-martial arts bouts trying to protect himself from both head and body blows at the same time.

The hits will keep on coming until a final farm bill finally gets to the president's desk.

Follow me on Twitter @ChrisClaytonDTN

Posted at 2:41PM CDT 09/13/13 by Chris Clayton
Comments (3)
A simple appraisal of the fair market value of crop insurance benefits including subsidies per policy holder demonstrates how grossly unfair and discriminatory this program benefits have been dispersed. For government to continually guarantee that those with the greatest probability of the greatest incomes will always have the greatest incomes reeks of the rigidity of the caste system in India. This insane income protection racket steals from smaller farmers a fair and equal opportunity to compete.
Posted by John Olson at 9:14PM CDT 09/13/13
Kinda like pumping $85 Billion a month into the bond (Wall Street) market.
Posted by CRAIG MOORE at 10:51AM CDT 09/16/13
Crop insurance makes SNAP look fiscally responsible. Good thing the city slickers are too clueless to realize their tax dollars are being wasted.
Posted by Bill Billson at 1:44PM CDT 09/16/13
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