Taxpayers overpaid to bail out farmers, report says

By JIM SPENCER Minneapolis Star Tribune Published:

Taxpayers paid billions of dollars more than needed to bail out farmers following the drought of 2012, due to the nation's overly generous crop insurance program, an environmental research and advocacy group charged.

Citing a report prepared by University of Iowa agricultural economist Bruce Babcock, the Environmental Working Group (EWG) said taxpayers paid more than twice as much as they should have to cover farmers' losses in the country's worst drought in more than 20 years.

Despite parched fields and low yields in some states, insurance payments and price guarantees pushed some farmers' incomes beyond what they would have made had the drought not occurred, Babcock said. Taxpayers paid three-quarters of the claims made against the crop insurance program, he added.

The $12.7 billion that taxpayers paid out for corn and soybean insurance claims in 2012 set a national record.

While Congress has a role in protecting farmers from natural disasters, EWG vice president Scott Faber said, "Congress does not have a responsibility to make farmers rich."

Babcock said farmers would have been sufficiently protected in the 2012 drought if they had been covered by "plain Jane" crop insurance policies. These would have led to indemnity payments of $6 billion rather than $12.7 billion, Babcock said.

Instead, he claimed, higher taxpayer subsidies and relatively low premiums for an insurance policy that pays farmers in the event of either poor yields or price drops encourages farmers to buy "Cadillac" crop coverage plans.

Without changes, Babcock said, taxpayers will continue to pay more than they need to in order to provide an agricultural safety net.

Farmers defended the crop insurance program as necessary to protect the nation's food supply.

"Crop insurance is the most important risk management tool I have," said Minnesota Farm Bureau president Kevin Paap, who grows corn and soybeans. "It's not a one-year thing."

Rep. Collin Peterson, D-Minn., said the crop insurance system worked in 2012. "We had the biggest drought since the 1930s, and there was no discernible request for a disaster bill," Peterson said.

The ranking Democrat on the House Agriculture Committee, Peterson helped draft a new five-year farm bill in 2012 that would keep the crop insurance program intact. The Senate passed a five-year farm bill last year without changing the crop insurance program.

Because the House did not vote on its farm bill last year, it must pass one this year and the Senate must debate and vote again on its farm bill.

EWG, an advocacy group that studies health and environmental issues, sees this as a parliamentary opportunity to reopen the crop insurance debate and make changes. Bills in the Senate and House would reduce taxpayer subsidies for crop insurance.

"We hope Congress finds the courage to take advantage of this opportunity to re-invent the farm bill," said EWG vice president Craig Cox.

Peterson sees that as a hard sell politically because farmers have made maintaining crop insurance their top priority since the 2008 farm bill cut $6 billion from the program.

Still, said University of Minnesota agricultural economist Bill Lazarus, Babcock has logic on his side. Subsidizing the most generous coverage at higher levels than basic coverage "doesn't make much sense," he said.

Crop insurance came into existence to take the place of piecemeal allocations by Congress after each agricultural disaster. That kind of funding was deemed too wasteful.

EWG officials insist that the current crop insurance program is approaching similar levels of waste.

Peterson, who has spent two decades in Congress as an agricultural specialist, called the claim "ridiculous."

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