Crop Insurance: GAO Seeks Cuts – DTN

Capping crop-insurance subsidies for the highest-income farmers would have minimal effect on the program, though the savings in federal dollars from such a move might not be as large as expected.

That was the conclusion reached by the Government Accountability Office in a report released Wednesday analyzing the impact if means testing were put in effect to reduce premium subsidies for the largest 1% of farmers.

Yet, cutting the premium subsidies for the largest farmers also doesn’t appear to generate significant savings for the crop insurance program. If premium subsides had been cut by 15 percentage points for the largest farmers from 2009-13, the federal government would have saved about $70 million over those five years, or about $14 million a year.

Premium assistance last year cost taxpayers about $6.5 billion. At $14 million a year in savings, reducing premiums on the largest farmers would equate to less than a fraction of a penny for every dollar spent on the program.

Still, the GAO continues coming out with reports pitching possible savings in crop insurance. This marks the fourth such report since last year and the second in consecutive weeks in which the office has recommended areas to cut taxpayer costs for crop insurance. Just last week, GAO called on USDA to increase crop-insurance premiums in counties with higher losses and insurance claims.

Taxpayers paid 62% of the average crop-insurance policy premium in 2014. The GAO maintains in Wednesday’s report that USDA could reduce those premium-subsidy levels through existing procedures without an act of Congress.

Crop insurance has no means testing now, but commodity and conservation programs limit eligibility to farmers if their adjusted gross income averages more than $900,000 over a three-year period. The Noninsured Crop Disaster Assistance program also uses the $900,000 AGI cap.

Farm groups and insurers have argued that larger farmers would withdraw from federal crop insurance if their premium subsidies were limited.

The GAO report generally defined the farming one-percenters, or “highest-income participants,” as farmers from 2009-2013 who averaged non-farming income of more than $500,000, or farm income of more than $750,000.

In any given year from 2009-2013, there were anywhere from 5,055 to 9,942 farmers who fit the definition of highest-income participants. According to the GAO, even fewer farmers would have made the top tier had GAO used the $900,000 income cap that the Farm Service Agency now uses.

The Obama administration did not propose income means testing this year for crop-insurance premium subsidies, but the administration did propose capping premium subsidies at 50%, which includes reducing the subsidy level on the harvest-price option. The House budget proposal released earlier this week would leave budget cuts up to the House Agriculture Committee, but the plan calls for about $100 million a year in cuts from USDA’s entire budget, suggesting crop insurance would be held harmless under the House budget.

GAO pointed out a couple of examples of large farms receiving large premium subsidies. One farmer insures an average of more than 150,000 acres a year of all kinds of crops — major, minor and specialty. Over five years, the farmer’s premium subsidies were about $6.1 million while the farmer also collected about $4 million in indemnity payments.

The 10 largest farmers in terms of premium subsidies had an average of about 39,000 acres and over five years had subsidies cover, on average, about $2.6 million in premiums.

About half of those one-percenters in the insurance program came from just five states — Texas, Kansas, Illinois, Iowa and California.

 

Photo by Debra L Ferguson - AgFax Media

Photo by Debra L Ferguson – AgFax Media


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