Sugar water or Kool-Aid?

Danger prowled Capitol Hill shortly after the Senate Ag Committee approved its version of the 2012 Farm Bill April 26.

The trouble wasn’t from folks who might have lost out when the committee “streamlined” 23 conservation programs into 13 to “save” nearly $6.4 billion over the next 10 years or from angry farmers who, if the Senate bill holds sway, will lose more than $5 billion a year in direct farm program programs beginning in 2013.

No, the real danger that day was getting a bipartisan slap in the kisser if you asked any committee member what part of the Agriculture Reform, Food and Jobs Act of 2012 contained any reform, food and jobs.

Changes

Certainly, the legislation contained big changes: $4 billion in cuts to nutrition programs, a Rural Development title that cut over $1 billion in the coming decade and, touted Ranking Member Pat Roberts of Kansas, “over SIXTY (his emphasis) authorizations eliminated from the Research Title,” cutting “at least $770 million over 5 years.”

Cutting agricultural research programs and chopping Rural Development is neither wise nor brave. It is easy, however, like taking lunch money from weakest kid on the school bus and declaring “Look what I found!”

Crop insurance

The centerpiece of the Senate farm plan is an expansion of crop insurance, the fastest-growing hottie chased by everyone in Congress because it looks both great and cheap. Two recent examinations of it, however, say it is neither.

Study 1

The first, authored by Iowa State University economist Bruce Babcock for the Environmental Working Group, claims a crop insurance program that “covers crop losses of more than 30 percent” — yield shortfalls, not today’s heavily subsidized revenue guarantees — could be given free to all farmers and save taxpayers “$26 billion in premium subsidies over 10 years,” $3 billion more than the entire Senate bill saves. (Links to the 25-page Babcock report and other documents are posted at www.farmandfoodfile.com.)

The reason, explains the report is because “over 80 percent of ‘crop’ insurance policies now insure business income even if there is no yield loss … This has doubled the cost to taxpayers …”

In practical terms, writes Babcock, that means “the average unsubsidized premium” for a 15 percent deductible “revenue” protection policy on a Champaign County, Ill., corn farm is $52 per acre.

After the federal subsidy, however, the price plummets to $26. A similar, 15 percent “yield” policy carries an $11 per acre subsidy and, after application, costs $17 per acre. So, what would you do if you could insure 85 percent of total revenue — a guaranteed yield and a guaranteed price — for $26 per acre or just 85 percent of yield at $17 per acre?

You’d spend the extra $9 because it offers more coverage, less risk and carries a bigger subsidy. And that’s exactly what has happened; farmers use the bigger subsidies to, wisely, “buy up” coverage. As such, federal crop insurance subsidies have soared from $2.4 billion in 2001 to $9 billion in 2011.

Study 2

A second study, done by the Government Accountability Office, calculates that if crop insurance subsidies were capped at $40,000 per individual — “as it is for other farm programs” — federal costs would have been $1 billion cheaper in 2011.

More staggering, adds GAO, the $40k limit would have affected only 3.9 percent of all “participating farmers, who accounted for about one-third of all premium subsidies …”

Against that evidence, Senate aggies fattened today’s fast-expanding crop insurance program even more, and House aggies are on record ready to join ’em at the subsidy trough because, as Babcock writes in his report, “The only rationale for a new federal revenue guarantee program on top of existing revenue insurance programs is that it seems politically easier to defend than direct payments.”

But crop insurance, fat or lean, is not a farm program. “Crop insurance will not provide protection against price declines that occur across years that typically persist across multiple years,” warns University of Illinois extension specialist Gary Schnitkey.

As such, the Senate’s Farm Bill is like trading sugar water for Kool-Aid. It’s a sweet deal for farmers, but it’s just more empty spending by Congress.