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US House, Senate Panels Pass Farm Bill Packages Adding Billions to Crop Insurance Subsidies

Source: BestWire

Posted on 23 May 2013 by Neilson

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Crop insuranceThe U.S. House and Senate have moved one step closer to passing a new five-year Farm Bill. The Agriculture committees in both chambers have passed bipartisan Farm Bill proposals that would add billions of dollars to the federal crop insurance program. The two bills mark the first attempts to complete a new Farm Bill since partisan budget battles forced lawmakers to pass a nine-month extension to existing legislation in January.

Representatives of the private crop insurance industry have praised both Farm Bill proposals. But because federal spending continues to be a lightening rod issue among lawmakers, it is still far from certain that Congress will reach a deal before the temporary extension expires on Sept. 30.

"Our work is just beginning," said David Graves, manager-secretary of the American Association of Crop Insurers. "We appreciate the work the leadership of both Agriculture committees has done to get these bills passed. But we now have to focus on educating the other members of Congress, and that is a new challenging world."

The Senate Farm Bill, which was approved 15 to 5 on May 14, is expected to save $23 billion over the next 10 years by cutting and consolidating hundreds of agriculture programs. The most significant spending cut in the bill is an end to direct payments to farmers, who have been paid annually whether they grow crops or not. The program cost an estimated $5 billion each year, according to the Congressional Budget Office.

The Senate bill would add roughly $5 billion to the federal crop insurance program. The legislation also includes language that would require farmers who receive crop insurance subsidies to comply with conservation measures.

Graves said the requirement represented a compromise between farmers, crop insurers and conservation groups. Farmers and crop insurers agreed accept tying crop insurance subsidies to forward-looking conservation compliance. In exchange, the conservation groups agreed to oppose means testing and other limits on crop insurance payouts, Graves said.

"We were supportive of the whole package," Graves said. "The compromise represents a very big community, and our hope is that it remains intact after the bill is brought to the floor."

The Senate Farm Bill is virtually identical to legislation passed by the full Senate last year. It is scheduled to be brought to the floor the week of May 20.

The House Farm Bill faces a more challenging road to passage. Efforts to strike a deal on a farm bill stalled last year after House leaders refused to bring legislation passed by the chamber's Agriculture Committee to the floor. Instead, lawmakers passed a nine-month extension to legislation passed in 2008 during negotiations to avert the so-called fiscal cliff.

The latest version of the House bill cleared the committee by a 36-to-10 vote on May 15, with the majority of support coming from Democrats.

CBO estimates the House bill will save $40 billion over the next 10 years, with roughly $20.5 billion coming from cuts to the Supplemental Nutrition Assistance Program, commonly known as food stamps. The Senate version would cut the SNAP program by $4.1 billion.

Like the Senate legislation, the House bill would cut direct payments to farmers. The House bill also includes a $9 billion addition to the crop insurance program. House Majority Leader Eric Cantor, R-Va., has said he expects the Farm Bill to be brought to the floor sometime this summer.

Meanwhile, President Obama has taken the opposite approach to crop insurance subsidies. The budget proposal Obama sent to Congress in April included $11.7 billion in cuts to federal crop insurance subsidies over the next decade. The White House estimates the federal government will save $37.8 billion over the next 10 years by combining those cuts with limits on direct farm payments and reduced spending on conservation programs. To date, Obama's budget has failed to gain traction on Capitol Hill.

"Congress has clearly shown an appetite for growing the crop insurance program," Graves said. "Many in leadership positions realize that there are fewer and fewer other tools to help mitigate risks, and lawmakers are funneling it into the crop insurance program."

That shift is not seen as a positive development by Bruce Babcock, director of the Biobased Industry Center and a professor of economics at Iowa State University. Babcock argues that increasing crop insurance subsidies has encouraged farmers to purchase revenue protection coverage, which protects against revenue shortfalls when crop prices decline and against yield shortfalls when crop prices increase.

That coverage can cost taxpayers up to 80% more than regular revenue shortfall insurance, which includes a harvest-price exclusion, and yield protection insurance, which covers losses due to low yields, Babcock said in a recent report commissioned by the Environmental Working Group.

"There are a lot of lower cost ways to manage risk than crop insurance," Babcock said in an interview. "If subsidies were completely cut away, farmers would look at the benefits of crop insurance and ask whether the benefits are worth the cost...Why do taxpayers have a stake in these subsidies?"

Babcock said he supports legislation introduced by Sen. Jeff Flake, R-Ariz., which would return subsidies to pre-2000 levels. CBO estimates that Flake's proposal would save taxpayers $40.1 billion over 10 years.

Laurie Langstraat, a spokeswoman for the National Crop Insurance Services, said before the subsidies were expanded in 2000, the crop insurance program had "very low" participation. "As a result, the federal government was called upon to address natural disaster losses in an ad hoc fashion," Langstraat said. "Ending these subsidies would lead to more calls for ad hoc disaster relief, which is much more difficult to budget for and costs more in the long run."

The debate over crop insurance subsidies comes at a time when the federal crop insurance program is facing its third consecutive year of record losses. The U.S. Department of Agriculture's Risk Management Agency, which administers the crop insurance program, reported, as of May 13, indemnity losses of $17.3 billion. Losses stemming from severe droughts across the Midwest in 2012 represented the No. 2 global catastrophe in 2012.

Recent floods in the Midwest are expected to add to the crop losses reported during the 2012 fiscal year. However, a USDA spokesman said RMA is still collecting data on those losses and it will be some time before loss totals are published.