The Case Against Taxpayer-Funded Crop Insurance

It's time to abolish this costly government boondoggle.

The Farm Bill, that quintessentially quinquennial congressional replenishment of the pork trough from which many of America's farmers indulge, is now upon us. Late last month the bill, dubbed the Agriculture Reform, Food and Jobs Act of 2012, cleared what will likely be its biggest hurdle when the bipartisan Senate Agriculture Committee voted 16-5 in its favor. 

I'll lead with the sliver of good news in the bill: Direct farm subsidies are on their way out. Subsidies are something many people—me included—have been attacking for years.

But what should be cause for celebration is instead just a case of shifting billions of taxpayer dollars from one needless federal agricultural scam to another. For as billions in direct subsidies die a worthy death, bipartisan efforts in Congress (mainly via the powerful Senate Ag Committee) could hand farmers billions of new dollars in indirect subsidies—in the form of taxpayer-funded crop insurance.

Though crop insurance isn't new, it's ballooned in size recently as support for subsidies has waned. Critics of this sleight of hand come from all corners, and include Joel Salatin (as stated in my Reason column from last week), Bloomberg News, and the Environmental Working Group (EWG).

"A newly released report on subsidized federal revenue insurance for industrial crop farmers shows that the government has failed to control its costs and big insurance companies and agents continue to reap billions of dollars in windfall profits," concludes economist Bruce Babcock of Iowa State University in a recent report commissioned by EWG, longtime critics of Farm Bill excesses. (EWG also boasts an incredibly thorough, well-maintained, accessible, and depressing online database of many of those excesses.)

A Minneapolis Star-Tribune editorial recently referred to crop insurance as yet another congressional "boondoggle" that "throw[s] money at farmers, whether they need it or not."

In additon to its cost overruns, bald waste, and corporate welfare, there's also a long history of fraud evident in the USDA crop insurance system.

So those are some of the problems with crop insurance. But what exactly is USDA crop insurance itself? Like most government schemes, it's really not just one program but is instead a boggling web of programs and offices.

According to USDA data, there are more than a dozen different types of crop insurance available for a litany of crops—from alfalfa seed to wheat. One program, Actual Production History, works like this:

The producer selects the amount of average yield to insure; from 50-75 percent (in some areas to 85 percent). The producer also selects the percent of the predicted price to insure; between 55 and 100 percent of the crop price established annually by RMA. If the harvested plus any appraised production is less than the yield insured, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the price selected when crop insurance was purchased and by the insured share.

There are currently 15 USDA-authorized crop insurance providers around the country. The USDA refers to the subsidies it doles out to these crop insurance providers as "cooperative financial assistance agreements."

But crop insurance doesn't end there. Even if a farmer opts not to buy USDA-subsidized insurance, that farmer might still be eligible for another form of USDA bailout. How's that? Well, an uninsured farmer whose crops fail (or are never even planted) due to a drought, tornado, flood, or virtually any other natural disaster that leads the USDA to declare a crop disaster is eligible to receive a payout from various disaster-relief programs, including USDA's Noninsured Crop Disaster Assistance Program.

Crop insurance has its supporters no doubt. Last fall, as they geared up for consideration of the Farm Bill, a host of crop insurance supporters gathered at what the crop insurance industry lobby called "a crop insurance pep rally" to extol the virtues and sheer wonderfulness of taxpayer-supported insurance. And the Senate Ag Committee touts the "widespread praise" of the Farm Bill it passed from a variety of groups whose no-doubt tireless lobbying ensured the bill reflects the interests of them and their members.

The correct answer to the question of direct crop subsidies or crop insurance is a resounding "neither." After all, an earlier study by Iowa State's Babcock suggested crop insurance is only about half as efficient as the crop subsidies they look set to replace. If crop insurance is an important element of farming, then let farmers buy such insurance on the open market—without taxpayer support—and, if need be, pass the costs on to consumers. That's something worth rallying behind.

Baylen J. Linnekin, a lawyer, is executive director of Keep Food Legal, a Washington, D.C. nonprofit that advocates in favor of food freedom—the right to grow, raise, produce, buy, sell, cook, eat, and drink the foods of our own choosing.