Proposed Cuts Spark Crop Insurance Debate

Federal crop insurance payments have long been a target for budget cutters, but the proposed reductions in the Trump administration's 2018 budget exceed what came previously.

Midwest lawmakers say they don't think the cuts have much, if any, chance of becoming law. But some groups say this will be a place to watch when a new farm bill is written next year.

The Trump administration's blueprint calls for $29 billion in cuts to crop insurance over the next 10 years.

Currently, the government subsidizes, on average, 62 percent of premium payments.

The bulk of the cuts, $16 billion, would come from limiting the size of premium subsidies to $40,000. That would affect relatively few farmers, the administration says.

However, another $11 billion in cuts comes from jettisoning the subsidy for a widely used insurance option that helps farmers hedge their risk. The Harvest Price Option lets farmers insure their crops based on the higher of the price at harvest or at planting. Farmers say this type of insurance allows them to make better decisions and takes some of the risk off the table.

The administration says farmers can find other ways to hedge risk, or they can do it without a subsidy.

The proposed cuts come at a time when things are more difficult in rural America. The Agriculture Department projected in February that net income would fall 8.7 percent this year, to about half what it was at record highs in 2013.

Cuts in crop insurance would exacerbate those pressures.

"This would continue to tighten the situation in agriculture-driven rural communities," said Chad Hart, an Iowa State University extension economist.

Hart notes that the Obama administration also proposed cutting subsidies. But these would be steeper, such as for the Harvest Price Option.

"These would be some larger cuts," he said.

Critics of the program applauded the Trump administration's proposal. They say the subsidies are too generous and the government shoulders too much of the risk for farmers.

In 2016, payments to Iowa farmers from crop insurance amounted to $54 million, according to federal data. Farmers paid $280 million in premiums, which doesn't include the government's share. But for the drought year of 2012, government payments to farmers exceeded $2 billion in Iowa. Producers paid $382 million in premiums that year.

In Illinois, payments amounted to $91 million in 2016 on producer premiums of $272 million. In 2012, the government paid $3.5 billion to farmers on premiums of $333 million.

Midwest lawmakers don't give the proposed cuts much chance in Congress. Sen. Chuck Grassley, R-Iowa, a member of the Senate Agriculture Committee, said most presidential budgets are dead on arrival.

Rep. Cheri Bustos, D-Ill., a member of the House Agriculture Committee, also gave the cuts little chance. Still, she said that with lower prices and income projections, "this is not a fight we should have to be taking on."

She said the proposal sends a "terrible message" to rural America.

Hart said Trump's budget is only the first step.

"I describe this as the first volley in what will be several rounds of negotiations," he said. "This is the beginning of the policy process."

Even if crop insurance subsidies aren't at risk of substantial cuts for this budget year, the Trump administration proposal comes just a year before expiration of the current farm bill. Next year, a multi-year farm bill will reauthorize programs, and targets will be set for spending.

Crop insurance subsidies are a large target in a fiscal environment in which the White House is pushing for increases in defense spending and countering it with non-defense cuts. That could present some risk to programs such as crop insurance, some analysts say.

"There will be a number of budgetary pressures as we go into the 2018 farm bill that are of concern," said Dave Miller, director of research and commodities services at the Iowa Farm Bureau.