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Crop Insurance: Two Senators Target Cuts to Save $21.1Bln – DTN

Ernst Undesser
By Chris Clayton, DTN Ag Policy Editor November 13, 2017

Crop Insurance: Two Senators Target Cuts to Save $21.1Bln – DTN

Soybean harvest. ©Debra L Ferguson Stock Photography

Corn and soybean farmers saw no benefit this fall from adding the harvest price option to their crop insurance plan, but that wasn’t enough to stop a pair of senators and a congressman from introducing legislation that would end the taxpayer premium subsidy on the harvest price option for crop insurance.

Sens. Jeff Flake, R-Ariz., and Jeanne Shaheen, D-N.H., introduced a bill they called the Harvest Price Subsidy Prohibition Act, which is the second piece of legislation the pair have introduced this fall to target crop insurance. The senators stated that eliminating the taxpayer premium subsidy for the harvest price option would save $21.1 billion over 10 years, according to the Congressional Budget Office.

The harvest price option gives farmers the chance to benefit from a price floor for their crops during the price discovery month of February (for corn and soybeans) and October when prices may move higher. That was not the case for 2017, as the spring guarantee for corn was $3.96 but the CME December corn contract at the end of October was $3.49. The spring price for soybeans was $10.19 but the CME November price for soybeans at the end of October was $9.75.

The harvest price option did work to the benefit of farmers in 2016 when fall prices for corn and soybeans were higher than spring prices.

The senators introduced a bill on Wednesday to eliminate the harvest price option for crop insurance. A companion bill was introduced in the House by Rep. John Duncan, R-Tenn.

Flake and Shaheen stated the cost to taxpayers of offering the harvest price option has escalated over time. The Congressional Budget Office had forecast taxpayers would pay $9 billion over 10 years back in 2013 when Flake first championed a similar bill. The senators noted the cost now is scored at $21.1 billion over 10 years.

“Making a living in agriculture isn’t easy or predictable, and there’s a case to be made for safety-net programs such as traditional crop insurance,” Flake said. “But HPO isn’t a safety net, it’s a taxpayer-funded windfall. With a $20 trillion national debt, taxpayers shouldn’t be expected to pay Big Ag billions of dollars for profits that they never expected to earn in the first place.”

Shaheen added that the senators were proposing “a commonsense reform” to save $21 billion for taxpayers. “This is a smart, pragmatic bill that will provide our current crop insurance program with a much-needed fix. We ought to act on it immediately to save taxpayer dollars,” Shaheen said.

Flake and Shaheen also introduced legislation targeting crop insurance profits that was scored at cutting taxpayer costs for crop insurance by $3.9 billion over 10 years. The bill would lower the rate of return for crop insurance companies from 14.5% to 8.9%.

Flake and Shaheen proposed identical changes to the crop insurance programs in 2015. Neither senator is a member of the Senate Agriculture Committee.

Farm Policy News


Joe Glauber, a former USDA chief economist, wrote an op-ed Wednesday in The Hill supporting Flake and Shaheen’s legislation. Glauber, now a senior research fellow at the International Food Policy Research Institute, stated, “It’s time to consider reforming the crop insurance program.”

Even without the harvest price option, Glauber wrote that farmers, “would still have a generous safety net that would provide protection in the event of yield losses. If they desire the Cadillac coverage, they would likely find it available on the private market. Indeed, such coverage was available as an “add-on” product offered by private insurance companies before the government began offering the harvest price option in the late 1990s.” (To read Glauber’s full op-ed in The Hill, visit here.)

As if on cue with the introduction of the Flake-Shaheen bill, the National Crop Insurance Services group sent out a statement from American Farm Bureau President Zippy Duvall. The statement quoted Duvall at an event in Indiana encouraging farmers to communicate constantly with lawmakers about the importance of crop insurance. Farm Bureau’s top priority in the farm bill debate is to maintain a strong crop insurance program.

“We’ve got to make sure that we have congressmen and senators who understand the importance of crop insurance,” Duvall said on the video. “Crop insurance is a requirement of most lending institutions today, and it is important to have that risk management tool there for our farmers.”

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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Ernst Undesser
By Chris Clayton, DTN Ag Policy Editor November 13, 2017