Taxpayers Forced to Subsidize Risky or Reckless Agribusiness

Taxpayers for Common Sense is the best organization that monitors excessive government spending. Here is their latest news update.

CROP INSURANCE HURTS TAXPAYERS When Congress reconvenes later this month, one of its major legislative priorities will be to reform the federal crop insurance program.

Crop insurance began in the 1930's as a response to the Dust Bowl crisis. The goal of the program is to help farmers buy insurance coverage that will pay off when bad weather destroys their harvests.

In 1994, after passing a string of emergency disaster bills, Congress enacted the sweeping Crop Insurance Reform Act: an effort to make the program more attractive to farmers so that there would seldom be a need or demand for separate emergency aid. The law expanded the program from just a few crops to more than 70 and dramatically increased the federal subsidy to help farmers afford the premiums.

In addition, the government pays insurance companies a fee for handling the policies. The program has cost the government at least $1.5 billion a year, and Congress is considering doubling that to improve the coverage and make it still cheaper for agribusiness corporations.

The Agriculture Department's Inspector General says that the program is very wasteful and is prone to abuse because most of the risk for financial losses is born by taxpayers rather than private companies.

The current program also provides incentives to produce crops on marginal, disaster-prone land that otherwise would not have been harvested. In 1998, 200 farmers from Texas obtained federally subsidized insurance on a type of cotton that can't grow in their region. They paid $4.4 million in premiums and then claimed nearly $15 million in benefits when their crops failed. Government paid those millions of our tax dollars to those frauds.

Farmers in the Midwest bought seed for durum wheat, even in the areas not suited for the crop, to take advantage of benefits far higher than they could earn if they grew and sold ordinary wheat.

These incentives lead to overproduction, which drastically lowers crop prices. The lower prices in turn trigger billions in additional government subsidies, both in emergency bills and in agricultural loan guarantees, such as loan deficiency payments. And after 1999's record $8.7 billion package, Congress is already preparing to pass a supplemental emergency spending bill in early 2000.

While taxpayers continue to shoulder all the risk for this program, private companies have reaped the benefits of over $2.8 billion in fees and underwriting gains (gross profits after losses) in the last five years.

The House of Representatives passed H.R. 2559 last year, which would add another $1.5 billion in subsidies per year, bringing the average subsidy of premiums up to 60%.

Congress should reform the crop insurance program in a way that reduces subsidies, and implements different insurance premiums based on the varying risks associated with each piece of land. Furthermore, these changes should be made in a way that eliminates the need for billions in new emergency spending.

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