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Crop insurance could cost record $16 billion

Taxpayer-subsidized program has drawn widespread criticism, but Congress has resisted efforts to reduce spending.

The New York Times

January 16, 2013 at 2:08AM

WASHINGTON - The worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields.

The staggering cost of the program has drawn renewed attention as the Obama administration and congressional Republicans wrangle over ways to cut the deficit. Last month, Treasury Secretary Timothy Geithner said that reducing farm subsidies was one way the administration could cut government spending. But Congress has resisted.

The Agriculture Department said that the total losses from crops harvested last year would not be known for weeks but that costs from the program were estimated to be $15.8 billion, up from $9.4 billion in 2011.

Separately, a record $11.4 billion in indemnities for crop losses has been paid out to farmers, and officials say that number could balloon to as much as $20 billion. In 2011, a then-record $10.8 billion was paid out in indemnities.

The crop insurance program has drawn criticism from a wide range of groups, including the Environmental Working Group and the conservative Heritage Foundation, two Washington research groups, which say that the costs need to be reduced and that the program mainly benefits insurance companies and large farmers.

Farmers' net income for 2012 is expected to be $114 billion, down 3 percent from 2011 but still the second highest in 30 years.

Thomas Zacharias, the president of National Crop Insurance Services, an industry trade group, defended the program, saying that the record crop losses last year showed the need for insurance.

The federal crop insurance program dates to the Dust Bowl era of the 1930s, when Congress created the taxpayer-subsidized insurance to protect farmers against crop losses.

Today, the government pays about 62 percent of the insurance premiums. The policies are sold by 15 private insurance companies that receive about $1.3 billion annually from the government. The government also backs the companies against losses.

Government documents show that taxpayers have paid nearly $7 billion so far to subsidize premiums for 2012. The documents also show that taxpayers could pay another $7 billion to underwrite losses by the insurance companies and other costs.

"Essentially, taxpayers are hit twice by the cost of the program," said Bruce Babcock, an agriculture economist at Iowa State University.

President Obama has proposed cutting crop insurance subsidies and reducing the amount paid to insurance companies, saving $4 billion over 10 years.

But Congress has balked at making such cuts and has even proposed expanding the program. Last year, lawmakers on the House and Senate Agriculture committees passed legislation that would eliminate $5 billion a year in direct payments to farmers and farmland owners who receive government checks regardless of whether they grow crops. But the legislation would use the savings to expand crop insurance.