Crop insurance is an essential safety net for farmers. But there is a major loophole that allows the largest farmers to reap the greatest benefits from this government subsidy. Capping crop insurance subsidies would close that loophole, and do a great deal to level the playing field for farmers.
With access to these unlimited crop insurance subsidies, the largest operations are able to leverage this benefit to take on greater and greater risk. This essentially is using taxpayer dollars to put other farmers at a competitive disadvantage. Unlimited subsidies also drive up land and rent prices, which intensifies the barriers for new farmers to get established.
This is why the next farm bill should bring greater fairness to farming and introduce a cap of $50,000 to crop insurance premium subsidies. Under such a cap, all farmers could still access a valuable safety net of $50,000 in premium subsidies for their crop insurance. Once they hit the cap of $50,000, they would pay the full price of their crop insurance premiums.
Who would be impacted by a $50,000 cap? Because crop insurance is handled by independent crop insurance companies, official data on crop insurance participation is hard to come by. However, a Government Accountability Office report shows that in 2010, only 0.9 percent of farmers received more than $50,000 in their crop insurance premium subsidies. In 2011, the number was 2.5 percent.
Opponents argue that capping subsidies will prompt large farms to leave the crop insurance risk pool and upset the whole system. But, leaving crop insurance would mean walking away from $50,000 in annual subsidies.
That doesn’t pencil out. We believe their argument serves only to protect the status quo. But, you don’t have to take our word for it.
In 2015, the federal Government Accountability Office considered the potential impact of reducing subsidies for producers whose income meets the limits under other farm and conservation programs. They found that reducing subsidies for these producers would only affect about 1 percent of producers, that it would have minimal impact on the crop insurance system and that it would save taxpayers millions of dollars.
The Congressional Budget Office also released a report last year that predicted a $50,000 premium subsidy cap would not have a significant impact on participation in crop insurance.
But, caps by themselves cannot level the playing field if a far-off part-owner of an operation can still claim a government subsidy every year. The last farm bill took a shot at closing this loophole by requiring that the government provide subsidies only to people “actively engaged” in the operation. However, the final result was weak. The next farm bill offers an opportunity to strengthen the “actively engaged” guidelines.
Not all proposals to change the structure of crop insurance would bring greater fairness for farmers in the way that caps would. A significant example is the proposal in the president’s budget for 2019 to cut crop insurance subsidies across the board by 10 percent. This is a lose-lose proposal: It would continue to protect unlimited subsidies for the largest operators, and it would deal a blow to smaller and mid-size operators who rely on this crop insurance safety net.
Caps on crop insurance premium subsidies make sense. They would preserve farmers’ safety nets, have minimal impact on participation in crop insurance, and would bring fairness back to farming. Caps are the needed change for crop insurance in the next farm bill.