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Senate's new farm bill will waste billions on subsidies, critics say

Crop insurance subsidies help farmers survive tough years, all agree. But critics say they are much too generous – and Congress could increase them further in its new farm bill.

By Richard MertensCorrespondent / June 10, 2013

Farmer Steve Henry looks at a patch of corn in Arapahoe, Neb., that failed due to drought, and will not be harvested, in this 2012 file photo. Nationwide, farmers were paid $14 billion in crop insurance claims for 2012 because of the widespread drought, an amount that has critics calling for changes to what they say is an inefficient taxpayer subsidy the government cannot afford.

Nati Harnik/AP/File

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To deficit hawks and critics of American farm policy, they are a clear example of wasteful government spending, lavishly rewarding farmers beyond what is necessary or fiscally prudent.

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To many farmers, they are crucial to American agriculture – a safety net that enabled them survive the worst drought in at least a quarter-century last year.

Crop-insurance subsidies were until recently a barely noticed part of US farm policy. But with their cost soaring and Congress under pressure to cut spending, they have become one of most contentious issues in the farm bill, a hugely complicated and expensive piece of legislation that the Senate is debating this week and that will set American farm policy for the next five years.  

In the broader debate, last year’s drought has become a subject of differing interpretations. Did generous payouts to farmers show that the system was working? Or did it prove that farmers have become too cozy on the public dime?

For now, Congress appears to support the subsidies. Efforts in the Senate to restrict subsidies have so far mostly failed, and proposals in the House and Senate are increasing them by as much as $1 billion a year. The Senate is expected to pass its bill Monday afternoon.

Last year, farmers bought insurance for 282 million acres of American farmland. Most of the premiums – an average of 62 percent – were paid by taxpayers. Three-quarters of the insurance subsidies go to four crops: corn, cotton, soybeans, and wheat. And with crop prices rising, both premiums and subsidies have been increasing to keep pace. A program that cost the federal government between $2.1 billion and $3.9 billion from 2000 to 2007 last year rose to $14 billion.

Insurance companies and many farm groups have fought hard to preserve the subsidies. They argue that the subsidies help boost local economies, save farmers, and eliminate the need for federal disaster assistance in bad years.

“Last year proved that the mission was accomplished,” says Mary Kay Thatcher, senior director of congressional relations with the American Farm Bureau Federation in Washington. “It was a terrible year, and we had no calls for disaster assistance.” Without current subsidies, she says, crop insurance “would be so expensive it would be unaffordable.”

Subsidies are popular in farm country, too. “Right now the feeling is really good about crop insurance in 2012,” says Paul Taylor, a corn and soybean farmer in Esmond, Ill., and president of the Illinois Corn Growers Association.

The drought hit the Corn Belt hard last year, but farmers still did well because they were able to sell their reduced crop at higher prices. In addition, the insurance payments they received for their losses were often based on drought-inflated prices.

Richard Gates, who farms about 1,000 acres in Carmi, Ill., lost 80 percent of his corn crop. Still, he says he earned as much profit as he would have if the drought had never happened.

“It means you can keep farming,” he says. “If you didn’t have it, it would have been difficult to go out and borrow money to put in a crop this year.”

Cadillac plans?

But critics like Bruce Babcock, an agricultural economist at Iowa State University in Ames and an architect of today’s crop insurance programs, argue that too-generous subsidies have warped the system he helped create, encouraging farmers to buy “Cadillac” plans that give them more coverage than they need.

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