Senate Farm Bill’s Crop Insurance, Shallow-Loss Programs Under Fire
|By David Bennett|
|Penton Business Media|
Critics of the Senate’s proposed farm bill continue to pop up from all over the political spectrum. Both crop insurance and the “shallow loss” program – key components of the
The Senate’s shallow loss program, advocated by many farm organizations, would provide producers with revenue guarantees and support levels for crops. A study released by the right-leaning
The study claims shallow-loss programs “are potentially expensive for taxpayers and especially costly in an environment in which grain and oilseed prices are declining from recent levels, as seems likely to be the case"
See the AEI study here.
The next farm bill is expected to contain an expanded role for crop insurance. A new report from the
EWG claims its analysis “shows that while crop insurance benefits, like farm subsidies, are concentrated in the hands of a small number of large farming operations, premium subsidies are modest for the overwhelming majority of crop insurance policyholders. Those farm operations would be unaffected by premium subsidy limits now being debated in
To read the report, see here.
For an alternate viewpoint on crop insurance, see here.
Following a presentation for congressional staffers on the shallow loss findings,
On shallow loss, trade and the WTO…
“When you deconstruct the language in the
“So, these are clearly amber box programs. That is, they’ll inherently be viewed within the WTO agreements as trade distorting – domestic supports that encourage production of individual crop. And that makes them ‘amber box.’
“The key issue from a trade dispute perspective is whether or not when your subsidies of that type go up, world prices are falling. Then, you’ll lose what’s known as a ‘price suppression’ case.
“Shallow loss payments are inherently designed to go up when prices fall. They have the potential to be very substantial in a given year for a crop relative to its value.
“For all the crops subject to the shallow loss program – the five big ones: corn, wheat, soybeans, cotton, rice, along with a bunch of smaller-acreage crops – when prices go down, the payments kick in. That tends to be the exact circumstance the WTO’s
How the bill might affect crop acreage breakdowns…
“As a result of this program, what incentives do I have to plant wheat as opposed to corn?
“That gets muddy because we have to understand the relative incentives this program will create for each crop. For large-acreage crops, it wouldn’t change incentives very much.
“But it might matter considerably more for small-acreage crops like canola or mustard seed. There, you’re essentially guaranteeing people fairly large returns in markets where prices are highly volatile anyway.
“We don’t know the answer quantitatively because no one has done serious work on that, including us. We would expect some acreage effects ... although my seat-of-the-pants guess is they won’t be very large.”
Costs, price drops, farm finances
On the study saying that “depending on structure and crop prices, these programs could cost the taxpayer as much as, or more, than the direct payments program they would replace:
“Shallow-loss programs have the potential to be very costly if prices move from recent high prices back towards the levels they’ve averaged over the last 15 years. Our numbers suggest the annual cost in the range of
“If prices remain where they’ve been in the last four or five years, our numbers are very similar to those developed by the CBO (
“But if prices return to historical levels – if we ease up on the ethanol mandate, which is well within the bounds of probability – then we’re looking at very substantial expenditures and a fairly high likelihood they’ll exceed the
More on price drops…
“We’re not trying to tell anyone ‘gee, prices are going to stay where they are’ or ‘they’re definitely going to drop.’ But if the ethanol mandate is politely forgotten about – the current position of many in the
“Yesterday, during a presentation we made on the Hill, someone asked ‘will the prices assumed (in the report) for a lower price scenario cause major losses for every crop?’ The answer is no.
“Whatever the story coming from the farm groups, we looked at variable costs of production. And when you look at the costs of planting and harvesting a crop, they’re well below, on per-acre and per-bushel bases, the low prices we considered.”
On the financial health of farms…
“It simply isn’t the case that agriculture is in dire straits. It isn’t the case that even one bad year for a farm would cast it into penury unless the operation is being very poorly managed in the first place. Most farms are exceptionally healthy right now in terms of finance. The average debt-to-asset ratio is less than 9 percent nationally.
“The guys who would get the big bucks in the (current) programs, those who get 80 to 85 percent of payments, would get roughly the same amount under shallow loss. They have net worths in the multiple millions of dollars. And we’re not talking about corporate farms but about 1,200 acre corn farms in
“Farmers aren’t stupid. They’re good business people and their financial position is actually healthier than almost any other sector in the economy right now. That wouldn’t change even if prices moderated substantially.”
For more 2012 farm bill coverage, see here.
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