Farm Subsidies

Feds: Why Should Taxpayers Cover Just 2/3 of Crop Insurance Premiums When They Could Pay The Whole Amount?


Just as voters at the local and state levels are signaling via the ballot box that they want government to pay less for public-sector workers' retirements, federal legislators are pushing to make taxpayers liable for more of private farmers' livelihoods.

Check it out:

Crop insurance has existed for decades, with the government now spending about $7 billion a year to pay about two-thirds of the cost of farmers' premiums. Under the federal program, farmers can buy insurance that covers poor yields, declines in prices or both.

On Tuesday, the Senate began debate on a farm bill, passed by the Senate Agriculture Committee in April, that would set up another crop insurance subsidy, costing $3 billion a year, to cover any losses farmers suffer, known as deductibles, before their crop insurance policies kick in.

Advocates, including farm interest lobbyists and lawmakers with a long history of creating and protecting benefits, argue that the new program would save Washington money by replacing a longstanding one costing $5 billion a year, known as direct payments, that pays owners of farmland a set amount regardless of whether they have planted crops.

So we're already paying $7 billion a year to cover 2/3 of farmers' premiums, plus another $5 billion in direct payments. That works out to $12 billion a year, right? If we swap out the direct payment program and toss in $3 billion in more insurance subsidies, then we'd be paying $10 billion total, for a savings of $2 billion. Why that's almost as good as just telling farmers to pay for their own goddmaned crop insurance, isn't it?

But wait, there's this:

The existing crop insurance subsidy ballooned to $7.3 billion last year from $951 million in 2000, or about $1.2 billion adjusted for inflation, according to another G.A.O. report released in April. The costs of the program have risen as the value of crops has increased. Over the next 10 years, a Congressional Budget Office study estimates that the premium subsidy for the existing program will cost about $90 billion.

"This is better than a government bailout," said Steve Ellis, vice president of the Taxpayers for Common Sense, a budget watchdog group in Washington. "A bailout is a one-time thing when something bad happens. But crop insurance keeps giving good or bad. And it's about to give even more."

Oh, and guess what else? Because the government pays most of the costs of insurance premiums, farmers buy marginal land and insure it, knowing that they'll make a return either through whatever crops they raise or whatever insurance payout they get.

By guaranteeing income, farmers say, crop insurance removes almost any financial risk for planting land where crop failure is almost certain.

"When you can remove nearly all the risk involved and guarantee yourself a profit, it's not a bad business decision," said Darwyn Bach, a farmer in St. Leo, Minn., who said that he is guaranteed about $1,000 an acre in revenue before he puts a single seed in the ground because of crop insurance. "I can farm on low-quality land that I know is not going to produce and still turn a profit."

Hand it to the feds. They've managed to improve on stupid subsidies ("direct payments") by creating (and looking to expand) a system that is even more idiotic and open-ended.

More here.

Hat Tip: World's Greatest Film Critic, Pastichist, and Blogger Alan Vanneman. If you don't believe that, read his recent entry on why the U.S. can't possibly fall behind the rest of the world.

NEXT: Same-Sex Marriage Disputed, Same-Party Elections A-OK; GovWorkers Hammered; More: California Results

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Direct payments are more economically efficient, even though they look sillier to most people (paid for nothing!) They still encourage the farmer to do the economically efficient thing with the land.

    However, people would rather have a very convoluted program that they can pretend is something else, rather than something more economically efficient but also more transparently naked subsidy.

    1. However, people would rather have a very convoluted program that they can pretend is something else, rather than something more economically efficient but also more transparently naked subsidy.

      Yep. With all the money we spend on social programs, just divide all the money up and give each person a check. No wasting any on bureaucracies and contractors and such.

      If you use it wisely, fine. If you drink or gamble the money away, that’s your decision.

    2. Plus the fact that a direct payment would make it harder for farmers to claim they were ‘free enterprisers’.

  2. Throughout the world, there is one class of people who consistently are whiners begging for handouts while viewing themselves as the hardest working members of society. The farmer.

  3. I believe most ‘farm states’ tend to Team Red.

    Let’s see how the ‘small government’ party congresscritters vote on this one.

    (When talking to a polititian, it is best to keep one hand tightly on your wallet.)

    1. The Team Red farmers tend to prefer direct payments.

      If it’s anything like past farm bills or subsidy votes, farm district Democrats will be the worst, then it may be a toss up between other Democrats and farm district Republicans, with Republicans from non farming areas being the most free enterprise.

      Cato has a good site for looking at the voting record on such issues (also trading in general.)

      On farm issues, the trends illustrated in David Mayhew’s Party Loyalty among Congressmen: The Difference between Democrats and Republicans 1947-1962 hold up very well even today 50 years later. Here.

  4. Feds: Fuck you Gillespie, thats why.

  5. That’s mostly for corn that’s fed to our cattle, right?

    1. I think its mostly for corn that’s fed to our cars.

      1. It’s not for high fructose corn syrup?

        1. No, it’s for high fructose gasoline.

  6. Always liked PJ O’Rourke’s description:

    How to Tell Your Ass
    from This Particular Hole in the Ground

  7. Recommended for those with strong intestines:

    The Revenue Insurance Boondoggle: A Taxpayer-paid Windfall for Industry



    The intense political support for the crop insurance program is a reflection of how hard and effectively the industry lobbies Congress. Crop insurance companies and independent agents are dependent on federal subsidies for their livelihood. Farmers, their suppliers and companies that buy farm products would hardly notice if commodity or conservation subsidies were eliminated, but a large portion of the insurance companies’ and agents’ business would disappear. This creates a powerful incentive for the industry to lobby hard while feeding highly self-serving information to Congress and the media.

  8. By guaranteeing income, farmers say, crop insurance removes almost any financial risk for planting land where crop failure is almost certain.

    1. To be more precise they take the risk of planting and transfer it to the public. always a great idea, works every time, or not.

Please to post comments

Comments are closed.