Crop Insurance in Need of Major Reform

According to a study authored by Iowa State University economist Bruce Babcock and commissioned by the Environmental Working Group, a government takeover of crop insurance programs could save taxpayers billions of dollars over the next several years.

With the decline of popular support for direct payment farm subsidies, crop insurance programs have taken center stage in Washington. As part of their agreement to drop support for direct payments, farm lobbyists from across the agricultural industry insisted that crop insurance be strengthened to protect farmers’ revenues and reinforce the farm safety net.

Current crop insurance programs rely on private insurers, with the federal government subsidizes up to 60 percent of the premiums that farmers pay to these companies. According to Babcock, these subsidies have led insurers to offer a wide variety of policies, protecting farmers against everything from natural disasters to a drop in corn prices. Since 60 percent of the costs are covered, many farmers have been eager to sign up for as many policies as possible.

The reliance on private corporations has also led to corruption, Babcock argued, with private insurers pocketing exorbitant fees. Overall, private crop insurance programs will cost taxpayers more than $90 billion over the next decade.

Babcock’s solution to this problem is a federalized crop insurance system that is free to farmers. His proposed crop insurance program would cover the risk of a poor harvest. If a harvest fell below 70 percent of average yields, the government would pay full market prices for any additional losses. This program, Babcock argues, would cost between $6 billion and $18 billion less than current programs, depending on the number of participants.

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Written by: Justin Ellison / Farm Plus Staff Writer