May 3 (Bloomberg) -- Maybe there is a different definition of the word “reform” in Washington than in the rest of the country. How else can one account for the latest version of the farm bill, approved last week by the Senate Agriculture Committee?
The bill, which Congress renews every five years, was supposed to cut giveaways to agribusiness and other wasteful spending. Indeed, Senate negotiators hailed the $23 billion in cost reductions over the next 10 years as one of the biggest shakeups in agriculture policy in generations. The committee achieved the savings by cutting some farm subsidies and trimming spending on environmental conservation and the food stamp program, which also falls under the farm bill.
The truth is the new bill might add to the quarter-trillion dollars in farm subsidies for which taxpayers are already on the hook. The measure will eventually go to the full Senate, where the latest gravy-train provisions should be derailed.
The one piece of good news is that the bill eliminates fixed payments, the $5 billion doled out annually to farmers as well as huge agribusinesses and urban residents who own land that might not have been worked in more than a generation. So much scorn has been heaped on these wealth transfers that the Agriculture Committee and the farm lobby knew that fighting to keep them was hopeless.
In place of fixed payments the committee added a new subsidy in the form of expanded crop insurance. Why this was needed is hard to fathom, because existing crop-insurance programs will cost taxpayers as much as $90 billion in the coming decade, according to the Congressional Research Service.
What makes this new benefit so troubling is that it might even be more expensive than the fixed payments. It certainly can’t be justified based on the health of the farm economy. Farm net income last year reached a record $98 billion, mostly because prices for commodity crops such as corn and soybeans were near record highs.
The new insurance program doesn’t just protect farmers against floods, drought and other vagaries of nature -- called deep losses. It guarantees farm incomes by compensating for so-called shallow losses as well. All it takes to trigger a shallow-loss claim is for a farm’s revenue to fall below 89 percent of a baseline.
Analysts say that shallow-loss insurance will cost taxpayers $33 billion during the next decade. That figure might balloon if commodity prices keep falling from their record levels of recent years.
Existing crop-insurance programs already give farmers too many misguided incentives. The federal government pays for 62 percent of the premiums of the private insurers who sell crop policies. This subsidy leads farmers to buy excess coverage and overplant.
Inefficiencies also drive up costs. For each $1 in payments to settle loss claims, the government pays another dollar to cover the overhead and administrative expenses of private insurers that underwrite the policies. These costs are about triple the rate of nonfarm property and casualty insurers, according to Bloomberg Industries analysis. The insurers, in turn, earn fat profits; a 30 percent average return compared with 12 percent in the private sector, according to the U.S. Department of Agriculture.
The Senate committee could have made a number of changes to lower spending while maintaining a safety net for farmers.
Trimming crop-insurance premium subsidies to 52 percent might save taxpayers as much as $10 billion over 10 years. Another $10 billion could be saved by capping insurance subsidies for an individual farmer at $40,000, according to the Government Accountability Office.
Give It Away
A more sweeping proposal by the Environmental Working Group calls for the government to essentially give away insurance. The U.S. Department of Agriculture would administer the program, covering 70 percent of a farmer’s crop and eliminating the inefficiencies of multiple private insurers. That might save as much as $18.5 billion during the next 10 years.
Reform can begin with smaller steps. Paul Ryan, the Republican representative whose budget proposals envision deep cuts in social programs, was on the right track five years ago when he called for $55 billion in cuts for agriculture by eliminating all subsidies to farmers with adjusted gross income of more than $250,000. Ryan has since backtracked, and his latest budget resolution seeks only $30 billion in savings. He will be under more pressure in the House, where Southern Republicans complain that the Senate bill, as generous as it is, isn’t as favorable to growers of cotton, rice and peanuts as it is to Midwestern corn, soy and wheat operations.
In an ideal world, farm subsidies would prevent catastrophic events from driving a farmer off the land. They have evolved into something more pernicious: welfare for the biggest farm businesses planting a handful of commodity crops and guarantees of income security offered to almost no one else in the country. That’s a big target for budget cutters to take aim at.
Are you up to it, Mr. Ryan?
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