When someone mentions the phrase “welfare queen,” I don’t conjure up an image of a lottery-playing single mom raising more kids than she can afford in Section 8 housing. I see the American farmer.
Agriculture has launched its election-year assault on our pocketbook under the cover of the 2012 Farm Bill, introduced in the U.S. Senate last week. The House plans to introduce its version in June.
Much will be made that this bill ends direct commodity payments, which pay farmers for growing crops. Rest assured, though, farmers have come up with an equally effective taxpayer-financed shell game. It’s called crop insurance.
I know what you’re thinking. What’s wrong with farmers having an insurance safety net in case their crops are wiped out by a hurricane, hail or drought? Nothing. In fact, crop insurance that protects farmers from low yields when natural disaster hits was the norm for decades. But the feds didn’t think enough farmers were buying insurance, so they started pushing a product that insures revenues, not crop yields.
Predictably, revenue insurance has been a hit. Who wouldn’t want it?
More than 80 percent of crop policies sold to farmers guarantee income, according to a complex U.S. Department of Agriculture (USDA) formula that – you guessed it – tends to favor larger, established farmers over smaller, newer growers.
With revenue insurance, a farmer can harvest a bumper crop, get a good price that leads to a tidy profit…and still receive an insurance check.
Such a sweet deal doesn’t come cheap. So, Big Ag convinced Congress to force you and me to help pay the premiums. It’s quite a chunk of cash.
In 2011, the Government Accountability Office (GAO) calculated that American taxpayers picked up 63 percent of crop insurance premiums for farmers. That totaled $7.4 billion. But the subsidy doesn’t stop there. We also kicked in another $1.3 billion to help insurance companies write these policies.
Farmers harvested a bumper crop of cash from this arrangement. Last year, claims hit an all time high of $11 billion. What a country!
Now I’m all for helping out an industry in hard times. That’s not the case with agriculture. This year, the USDA projects farm income to be $91.7 billion, the second highest in history. The highest was last year, at $98.1 billion. In fact, five of the highest farm income years have occurred since 2004. Maybe this is why farmland values have rocketed 85 percent from 2003 through 2011, according to the GAO, even as commercial and residential real estate values tanked.
No doubt, tight budgetary times will force some tough congressional fights to trim farm programs. I predict, however, that any small fiscal gains for taxpayers will be wiped out unless controls are placed on crop insurance, which some ag economists have described as a boondoggle. There are a lot of good suggestions. I’d start with these:
• Eliminate subsidies for revenue insurance. Frankly, it’s unseemly to guarantee income in any economic sector.
• Eliminate subsidies for insurance companies. Last time I looked, none of the 16 insurance firms writing these policies were going broke.
• If subsidies survive, they should be directed only toward yield insurance so farmers are protected against natural disasters, not market forces.
• If subsidies survive, at least cap them at no more than $40,000 per farmer, the same limit that exists today on direct payments. There are cases in which some farmers have received more than $1 million in premium subsidies during one year.
As bad as the financial threat is, an equally real threat is moral. North Carolinians know this all too well, since some of the largest crop insurance scams prosecuted by the feds in recent years have originated in Eastern North Carolina.
Scammers aside, farmers know that the financial safety net built to protect them is now used to game the system. They rationalize that the amount of money bled from the Treasury is a small percentage of the budget. That’s true. But that doesn’t make it right.
Contributing columnist Rick Martinez (email@example.com) is news director at WPTF, NC News Network and SGRToday.com