The Big Insurance Gamble For Farmers And Taxpayers

July 28--For the past 46 years Richard Barber has coaxed peanuts from the earth in western Marion County, but it wasn't until last year that for the first -- and only -- time he took out an insurance policy on his crops.

Barber said he wanted some protection for a field where Mother Nature, and not an irrigation spinner, provided the water.

As it turned out, things didn't go according to plan, and Barber collected on a claim. Still, he won't do it again.

"It's not a good investment because my yields are always good," he said of the insurance policy.

"I know I'll be taking a gamble on a hurricane or a lot of things that are not under my control, but for me, it's not economically feasible."

Last year Barber was among 1.2 million farmers who obtained a crop insurance policy. That number is expected to increase as Congress, in the new farm bill, seeks to use insurance instead of direct payments as the federal safety net for farmers.

This potential policy shift puts U.S. Rep. Ted Yoho, the newly elected Republican congressman for this region, in a delicate political position.

He supports the move, which he says is consistent with his conservative stance on assistance and economic issues. But conservative groups like the Heritage Foundation and Taxpayers for Common Sense are bitterly opposed, saying the feds are taking on far too much expense with crop insurance.

Meanwhile, Yoho's district -- which includes much of Marion and Alachua counties -- is among the biggest winners in the current system. In fact, the district was tops in Florida last year in the amount of government subsidies paid to farmers.

According to the Environmental Working Group, or EWG, a Washington-based organization that tracks federal farm subsidies, the USDA in 2012 paid $6.7 million to farmers in Yoho's district for all agriculture-related subsidies, including disaster relief.

That represented about 6 percent of the $114 million the USDA paid to Florida farmers last year, the EWG reports.

Crop insurance has blossomed in recent years to already become the nation's costliest farm-support program.

Under the new farm bill, which looks 10 years into the future, the program will widen in scope and further escalate in cost.

Proponents of expanding crop insurance maintain that the program, which has roots that stretch to the Great Depression, has brought stability to an erratic and often expensive system of federal farm support.

Proponents also point out that crop insurance improves the direct-payment system. That's because farmers buy the insurance, and the coverage kicks in only during the worst of circumstances.

Critics, however, counter that crop insurance has become more expensive and that it offers less accountability than the direct payments that would be phased out in the measure.

The farm bill remains stuck in Congress, although not so much because of crop insurance.

The food stamp program is also part of the bill, and House leaders last week said they will try to cut billions from food stamps before negotiating with the Senate on the overall bill.

An issue of accountability

For years, Barber, like thousands of farmers across the country, has received direct payments -- which nationally make up a $5 billion annual entitlement based on the historic production of the growers' land.

The payments -- provided to producers of key staples like wheat, corn, rice, soybeans, peanuts and cotton -- are unaffected by fluctuations in crop yields, crop prices or the farmers' income.

Lawmakers, Republican and Democratic alike, favor ending direct payments. A U.S. Government Accountability Office report issued in early July helps explain why.

The GAO called for overhauling the program, highlighting practices it considered questionable. For instance, the government paid U.S. farmers $46 billion in direct payments between 2003 and 2011.

The GAO found that almost a quarter of that amount, $10.6 billion, went to farmers who in a given year did not actually grow the crops that qualified for the subsidy, which is permissible.

Moreover, the GAO discovered that between 2007 and 2011 about 2,300 farms received direct payments despite allowing their land to remain fallow each of those years. In 2011 alone, those farmers collectively reaped $3 million.

The auditors recalled in the report a previous GAO study from 2007 that revealed the U.S. Department of Agriculture had paid $1.1 billion in direct payments to 170,000 people who were dead.

Barber maintains that farmers need a safety net.

"Agriculture is a little bit different than most manufacturing," he said. "You get one shot, and if you miss it, you've got to wait a whole year."

"It helps the safety net. It helps the general farm economy," he added.

Still, Barber is not bothered to see direct payments go.

"It's not needed now," he said.

USDA data show that farm incomes have hit record levels in recent years.

The agency reported in February that net farm income has doubled since 2009, leaping from $63 billion that year to a projected $128 billion this year.

Barber, however, isn't so sure insurance will duplicate for farm economies what direct payments did.

"If it does anything, it might keep a farmer from quitting. It might keep you in business if you're just going to stay in business," he said.

Yoho's frustrations with both parties

When the initial version of the farm bill was defeated in the House in June, Yoho, the only Florida lawmaker on the House Agriculture Committee, slammed Democrats and his fellow Republicans.

The bill, Yoho said in a statement, failed because of a "plague of ignorance" in Congress.

Democrats earned Yoho's scorn because of their unflagging commitment to the status quo on food stamps. The freshman lawmaker chastised his fellow GOP members for not recognizing that the shift from direct payments to crop insurance represented "a conservative movement toward market-based policy."

Crop insurance is heavily subsidized by the government and now costs nearly three times as much yearly as direct payments.

Yoho's office did not respond to the Star-Banner's multiple attempts to ask the congressman to further explain how the reform helps taxpayers.

On July 11, when the House passed its version of the revised farm bill, Yoho noted in a statement that the measure reformed, reduced and eliminated more than 100 "wasteful and duplicative" programs.

As the name implies, crop insurance is an insurance policy.

It protects farmers against, as the USDA says on its website, the "unavoidable perils beyond the farmer's control."

Policies can be written to cover the farmer for a drop in crop yield, a decline in revenue, or both.

Farmers pay premiums, and a deductible is applied as with other insurance policies.

That is, unless the loss is due to a catastrophe. Then, the government covers the deductible as well.

Writing in March in The Hill, a publication covering Congress, Tom Zacharias, president of the Kansas-based National Crop Insurance Services, observed that insurance had spared Congress from farmers seeking financial relief from drought and floods that had ravaged many parts of the country.

"Before crop insurance was widely available, natural disasters like we have just experienced would have triggered a very costly, unbudgeted ad hoc disaster bill," wrote Zacharias.

He pointed out that 42 such bills have cost taxpayers $70 billion over the past quarter century.

Zacharias also noted that farmers had paid $4.1 billion in premiums in 2012 and roughly $30 billion cumulatively dating back to 2000.

In addition, the government has posted $4 billion in gains in recent years when premiums have outpaced claim payments, he wrote.

Janell Hendren, national affairs coordinator for the Gainesville-based Florida Farm Bureau, called crop insurance "a great risk-management tool."

"Farmers have skin in the game, it makes them follow good farming practices, and it's good risk management, because the whole point is to have a secure food supply," Hendren said in an interview.

One way crop insurance benefits taxpayers, Hendren noted, is that farmers must demonstrate to regulators they did all they could to produce a solid crop in order to have a claim honored.

"It gives a good farmer a chance to start over, and for a bad farmer not following good practices, it's not propping them up any more," she said.

Still, the program is heavily laden with federal dollars, and it is growing.

The USDA reports that 180 million acres of farmland were covered by crop insurance in 1998.

By 2012, that total was 282 million acres of insured cropland, according a study released last December by the Congressional Research Service.

Much of the increase is attributable to an expansion of the program.

Today, more than 100 different crops can be protected. The USDA even makes policies available to livestock and dairy producers.

Participation has also risen because of increases in the subsidy amount for insurance premiums and mandates for coverage from the government and financial institutions that make farm loans.

While premiums are assessed on the amount of coverage a farmer wants, the CRS pointed out that Washington pays on average, 62 percent of the farmers' individual premiums.

Paying those premiums cost the government $7.1 billion in 2012, double what it was just five years earlier.

"In the absence of premium subsidies, farmer participation in the crop insurance program and/or purchased coverage levels would be lower," the CRS report said.

The EWG database indicates that the government spent $3.9 million between 1995 and 2012 on crop insurance in Marion County. That went to pay claims and the insurers' overhead.

That was offset by about $1 million from premiums paid by farmers over that period. The government's cost in Alachua County was $8.3 million during that same time frame.

Alachua farmers paid $1.8 million for their policies.

Besides helping with premiums, U.S. taxpayers fund the administrative overhead for the 17 insurance companies that underwrite the policies.

That came to $1.4 billion last year.

That cost has dropped in recent years, but it remains significantly above what it was in the early part of the last decade.

Combining the payments for premiums, claims and overhead, the taxpayer cost has risen from $2.2 billion in 2000 to $14.1 billion last year.

Much of that spike came within the past two years -- the government's cost in 2012 was fivefold the amount in 2010 -- as drought ravaged significant parts of the Midwest and South.

In the new farm bill, Congress sought to further pad the amounts for the next 10 years.

The Senate version would add $5 billion over current spending during that time, while the more generous House version would up it by $9 billion.

Moreover, the bill creates new exceptions for cotton and peanuts, and the legislation directs studies for possibly insuring poultry, swine and catfish.

Critics question where all the money goes.

The EWG has found that in 2011 the government paid 26 "farming operations" more than $1 million each for their crop insurance premiums, while 10,000 individual farms received $100,000 or more.

That year, according to EWG, the top one-fifth of insured farmers snared 73 percent of the premium subsidies, averaging a payment of $55,224 apiece.

That compared to the other 80 percent, who received an average of $5,066.

Moreover, critics fret that crop insurance has become a financial crutch for farmers.

Congressional researchers report that seven of every 10 policies written in 2012 were for "revenue-based" policies.

That means the bulk of those 1.2 million policies were designed to help farmers meet a targeted income level.

Conservative complaints

Even the natural allies of conservative lawmakers like Yoho are expressing skepticism.

The Heritage Foundation, a conservative think tank in Washington, referred to crop insurance costs as "out of hand" in a June blog post.

The group linked to another GAO report from April that argued that had the USDA cut the average for premium subsidies from 62 percent to 52 percent, taxpayers would have saved $1.2 billion.

"When the House bill is to the left of (President Barack) Obama on the most expensive farm program, what does that say about the House farm bill?" Heritage asked in its blog post.

Taxpayers for Common Sense, another right-leaning group in Washington, noted in a report on crop insurance last October that deserving farmers need a "thoughtful level" of taxpayer support, if the private insurance market cannot sustain them in a disaster.

Beyond that, though, taxpayers should be spared the expense, the group said.

"Farm businesses should use their own dollars to purchase private crop insurance or utilize other methods to protect against most yield and revenue risks," the report said.

"(E)xpanding crop insurance to cover shallow losses that guarantee farm business income and transfer unnecessary risk to taxpayers should be rejected outright."

Contact Bill Thompson at [email protected] or 867-4117.

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