Farm Bill subsidized insurance scam and California groundwater
Environmental Working Group
What Others Are Saying About The Farm Bill
By: Libby Foley, Policy Analyst
The farm bill passed by Congress takes food and farm policy in the wrong direction. It lacks the conservation funding needed to protect the nation’s natural resources and makes damaging cuts to the Supplemental Nutrition Assistance Program (SNAP).
These cuts helped Congress free up additional funding for federally subsidized crop insurance. Apparently the program’s price tag of more than $14 billion in 2012 wasn’t high enough. The new farm bill creates new, expanded and largely unlimited crop insurance subsidies that will flow predominantly to the largest and most successful farms.
At a time of record farm income and a growing national deficit, there was no need to expand the crop insurance program – a blatant example of corporate welfare– especially at the expense of family farms, the environment and America’s hungriest citizens.
Here’s what others have to say about the bill:
Taxpayers for Common Sense:
Today, the Senate passed a trillion dollar farm bill that increases special interest subsidies for one of the most profitable sectors of our economy while turning a blind eye to our country’s more than $17 trillion national debt. The Agricultural Act of 2014 expands the government’s role in agriculture, picks winners and losers, hides the names of lawmakers and Cabinet Secretaries receiving taxpayer subsidies and guts provisions to rein in subsidies to city dwellers and other non-farmers.
National Sustainable Agriculture Coalition:
The bill jettisons the long-overdue payment limitation reforms included in both the House- and Senate-passed bills last year that target farm subsidy payments to working farmers. It also drops a provision passed twice by the Senate that would have modestly reduced insurance subsidies to millionaires. Additionally, the bill cuts billions from the very conservation programs that help farmers address production challenges and protect natural resources and the environment. The final bill also reduces benefits for a portion of SNAP (food stamp) participants.
“At a time of fiscal restraint, growing income inequality, and economic distress in rural communities, it is appalling for the new farm bill to continue uncapped, unlimited commodity and crop insurance subsidies for mega-farms,” said Ferd Hoefner, Policy Director with NSAC. “The backroom deal to reverse the reforms backed by a bipartisan majority of the both the House and the Senate is an affront to the democratic process.”
While Congress and the White House reached consensus that the time has come to finally end the awful “direct payments” program, Congress squandered most of those savings through the creation of a variety of new “shallow loss” insurance programs that look to lock in record-high commodity prices. The White House also proposed scaling back premium subsidies for crop insurance as well as administrative and operating expense subsidies to crop insurance companies, while the bill passed by Congress actually expands the crop insurance subsidies, a program with no limits or caps whatsoever to hold down costs.
“Given that shallow loss places trillions of dollars of market price fluctuation risk on the backs of taxpayers, we would not be surprised to find that this bill actually proves to be more expensive than a straight extension of existing law,” [R Street Senior Fellow Andrew] Moylan said. “We call on the president to use his pen to veto this measure and insist that Congress return a bill that at least meets his own modest budget savings demands.”
New York City Coalition Against Hunger:
I am devastated, but unfortunately not surprised, by the Senate’s passage of a Farm Bill cutting SNAP by nearly $9 billion, on top of $11 billion in cuts that took place last November 1st. Our political system is so broken it has morphed into spineless versus heartless, and low-income Americans are, once again, those who will suffer most. Every member of Congress who voted for this legislation should be embarrassed. It’s an orgy of corporate welfare and subsidies for the wealthy paid for by cuts to programs that help the needy put food on the table. It is Robin Hood in reverse. – Executive Director Joel Berg
Bread for the World:
Though less than the $40 billion cuts to SNAP proposed in 2013, the $8.6 billion cut included in the bill will have drastic implications for hundreds of thousands of SNAP households. While the bill will not kick current beneficiaries off the program, it will cut benefits for approximately 850,000 households.
“Congress must not forget that many American families are still struggling to put food on the table – especially at a time when unemployment remains high and programs that support hungry and poor people are at risk of greater cuts,” [Bread for the World President Rev. David] Beckmann added. “Any cut to SNAP is harmful.”
Feeding America strongly opposes the $8.6 billion cut to SNAP (the Supplemental Nutrition Assistance Program) included in the legislation. The bill will result in about 850,000 low-income households losing an average of $90 in monthly benefits. This reduction in benefits follows an approximately $11 billion cut to SNAP benefits that took place on November 1 of last year.
These cuts will be concentrated in 15 states and the District of Columbia and will equate to about 34 lost meals per month for each affected household – a total of 3.2 billion lost meals over 10 years, according to estimates by Feeding America. – CEO Bob Aiken
Food Research and Action Center:
FRAC has opposed the SNAP cuts because they will harm too many of the most vulnerable members of our society, making monthly food allotments fall even further short of what is needed for seniors, people with disabilities, children, low-income workers and unemployed people. We appreciate the efforts of the many members of the House and Senate, the many national, state and local groups, and the many editorial writers and social media outlets that have opposed these cuts and spoken to the importance of defending already-inadequate SNAP benefits against these and other cuts.
SNAP is essential to the nutrition, health and wellbeing of 47 million Americans each month. Just a year ago, an Institute of Medicine committee found that SNAP benefits are already inadequate for most families to purchase a healthy diet throughout the month. IOM acknowledged flaws in how benefits are calculated and outlined possible strategies to remedy the problem. At the same time, a spate of studies over the last year has shown how important adequate monthly benefits are to health and wellbeing, and how inadequate benefits drive up hospital admissions and various other costs.
Washington Post editorial:
The bill’s authors urge support because it eliminates egregious “direct payment” subsidies and makes a few other incremental reforms. But for every step the bill takes toward better federal agriculture policy, it takes two or three steps in the other direction. Worst of all, it creates two new programs – Agriculture Risk Coverage and a Supplemental Coverage Option – which, taken together, all but guarantee beneficiaries’ revenues never fall below 86 percent of their earnings during years of high crop prices, according to estimates by Montana agricultural economist Vincent H. Smith. This federal largess is subject to no significant means testing. In fact, people making up to $900,000 in adjusted gross annual income can qualify for payments. Why would a president concerned about inequality endorse such welfare for the prosperous?
Contrary to what its apologists claim, the 2014 farm bill is not a hard-won triumph for bipartisanship. Instead, it is a case study in everything that’s wrong with Congress. This is a bill of, by and for the agriculture lobby, which, through sheer power and self-interested persistence, ground down reform advocates over three years. The premise of the legislation – that this country would be at risk of shortages and soaring food prices without multiple layers of central planning in agriculture – is simply not true.
Americans For Prosperity:
Looking closer at farm programs, this conference report cements the corporate welfare policies that have defined U.S. farm programs for far too long. It doesn’t eliminate the redundant catfish inspection program, for instance. Although it does reportedly eliminate the widely criticized direct payment program, it expands a number of other corporate welfare programs such as crop insurance premium subsidies and revenue guarantees. In addition, although the dairy’s supply management program that House Speaker Boehner criticizes is excluded, the conference report includes premium reductions to help dairy farms, essentially cancelling the benefit. - Federal Affairs Manager Christine Harbin Hanson
New York Times columnist Mark Bittman:
O.K., it’s a compromise. But it’s a corrupt compromise when you consider that subsidies to wealthy farmers should actually be eliminated or at the very least capped, and they’re most certainly not. (And the new crop insurance that’s taking the place of direct payments is itself heavily subsidized; a true compromise would at least reduce those subsidies enough to compensate for unnecessary food stamp cuts.) And it’s an unfair compromise because food stamp funding should actually be increased:there have never been more people in need of it, and many eligible people don’t actually receive food stamps because outreach programs are no longer funded. And it’s a stupid compromise because it decreases conservation funding … why, exactly? Because we’ve succeeded so well at conservation that we don’t need it any more?
In fact, the bill achieves its small savings at the expense of poor people and the environment, while – and I’d bet on this – it will in the long run achieve no savings in payments to farmers who hardly need them, who can receive payments as long as their income is under $900,000. That’s adjusted gross income, by the way.
Los Angeles Times editorial:
There's nothing wrong with insurance per se, and the dairy approach appears to be a real improvement over the current policy. Where the corporate welfare comes in is with the premium subsidies, which in the case of the crop insurance programs are available to any farmer with an adjusted gross income of less than $900,000. The limit per farmer is $125,000, or $250,000 if you include a spouse. And there is, as yet, no effective mechanism to stop people who aren't active farmers themselves – e.g., people who merely rent out their land – from collecting subsidies.
On average, taxpayers have covered 62% of the cost of the insurance premiums.
There's also the issue of how the programs are designed. Should crop prices fall from their current, elevated levels, one of the new insurance plans could wind up costing more than the direct payments program that's slated for elimination, some critics say.
Take crop insurance, which has its roots in the Dust Bowl era. Though conditions have changed substantially since then – the small family farmer has virtually disappeared – crop insurance has mushroomed. In 2012, according to The Insurance Journal, taxpayers spent $14 billion insuring farmers against a loss of income. Is there any other business in America that gets that sort of benefit? Aren’t farmers supposed to be entrepreneurs willing to take risks?
This farm welfare comes at a time when agricultural income is soaring. Last year, farm income was expected to top $120 billion, its highest mark, adjusted for inflation, since 1973, the Insurance Journal said. Lots of millionaires and billionaires are on the list of those receiving the assistance.
One case of mind-boggling hypocrisy is that of U.S. Rep. Stephen Fincher, a Republican and a farmer from Frog Jump, Tenn., who collected nearly $3.5 million in subsidies from 1999 to 2012, according to the Environmental Working Group. In 2012, he received $70,000 in direct payments alone – again, money paid to farmers whether they plant or not. (Can anyone say “moochers” and “takers”?)
New Republic article by David Dayen:
But don’t be fooled: The politicians patting themselves on the back for repealing subsidies to farmers have found a surreptitious way to deposit these savings right back in the pocket of agribusiness. That’s because the farm bill will expand subsidies for crop insurance, which looks like a private-sector program but which actually hands over virtually the same amount of taxpayer money to farmers, mostly wealthy ones, as the old direct payment program. What’s more, the shift from direct payments to crop insurance ensures that those handouts can be distributed in a hidden, more politically palatable way, making it more difficult to ever dislodge them.
Huffington Post blog by John Boyd of NBFA:
Many of us farmers and advocates worked very hard on the farm bill. I wanted to see more reform for federal crop insurance for minority farmers. The larger farmers will receive the most help while small and minority farmers will receive little to no relief under the federal crop insurance program.
I was also pushing for more transparency. If recipients get large payouts from federal crop insurance, then you, the American people, should know who gets how much. Those bills and amendments failed in the House compromise as well.
Globe Gazette (Mason City, Iowa) editorial:
Cutting food stamps now, even in a compromise bill that isn’t as bad as it could have been, would be a travesty.
Keep in mind, “compromise” doesn’t mean cutting everywhere equally. While some farmers lost their direct payments, they got in its place a generous crop insurance incentive that some estimates show will eventually pay them more than they were reaping from the old subsidies.
Big corporate farms win. Small farmers lose. This is the congressional way: The rich get richer and the poor get food yanked from their mouths.
Farming or just farming the new farm bill
Wall Street Investors Take Aim at Farmland
—By Tom Philpott
In a couple of posts last fall (here and here), I showed that corporations don't do much actual farming in the United States. True, agrichemical companies like Monsanto and Syngenta mint fortunes by selling seeds and chemicals to farmers, and grain processors like Archer Daniels Midland and Cargill reap billions from buying crops cheap and turning them into pricey stuff like livestock feed, sweetener, cooking oil, and ethanol. But the great bulk of US farms—enterprises that generally have razor-thin profit margins—are run by independent operators.
That may be on the verge of changing. A recent report by the Oakland Institute documents a fledgling, little-studied trend: Corporations are starting to buy up US farmland, especially in areas dominated by industrial-scale agriculture, like Iowa and California's Central Valley. But the land-grabbing companies aren't agribusinesses like Monsanto and Cargill. Instead, they're financial firms: investment arms of insurance companies, banks, pension funds, and the like. In short, Wall Street spies gold in those fields of greens and grains.
Why are they plowing cash into such an inherently risky business with such seemingly low profit potential? For Wall Street, farmland represents a "reassuringly tangible commodity" with the potential for "solid, if not excellent, returns," the Oakland Institute notes—something clients are hungry for after being recently burned not long ago by credit-default swaps and securities backed by trashy mortgages. As the saying goes, you can't make more land; and as the Oakland Institute notes, "over the last 50 years, the amount of global arable land per capita shrank by roughly 45 percent, and it is expected to continue declining, albeit more moderately, going toward 2050."
Nearly 40 percent of US farmland is rented—and more like 50 percent in ag-heavy regions.
Financial institutions and food-strapped countries like China and United Arab Emirates have already been snapping up land in the developing world, where prices are low and labor is cheap. But now, the Oakland Institute reports, pricey US land is also looking attractive, because it "boasts some of the world's most fertile soil, advanced industrial farm technology, strong private property rights, [and] federally subsidized crop insurance."
And Wall Street likes a good bubble. Farmland prices have soared to all-time highs in recent years, pushed up by the government-mandated corn ethanol boom. The average per acre price of Iowa land surged about 60 percent in real terms between 2007 and 2012, and rents have jumped in lockstep.
The report notes that over the next 20 years, nearly half of US farmland—about 400 million acres—will be up for sale as our aging base of farmers moves into retirement. So far, Wall Street cash is moving onto US farms like a stream; financial firms own just about 1 percent of total acreage, and most farmland is still bought by farmers, not institutional investors, the report states. But as more prime land enters the market, the hot money could soon flow like a gusher. By mid-2013, farmland was such a hot commodity that institutional investors were complaining of a tight market for prime farmland—that is, they had more money committed to buying farmland than they could find attractive deals for. But the supply of prime farmland for sale will expand as farmers retire in the coming decades, and Wall Street looks poised to move into the market.
And of course, you don't have to take on the risk of farming when you buy farmland; you can also collect rent checks from the people who take on that risk. According to this USDA report, nearly 40 percent of US farmland acres are rented, and in the ag-heavy regions of farm states such as Iowa, Illinois, and California, the number tops 50 percent. The Oakland Institute report points out that one of the biggest players eyeing US farms is UBS Agrinvest, an arm of the Swiss banking mammoth UBS. UBS's strategy: "Rather than gambling its profits on commodity prices that could rise or fall, Agrivest prefers the predictable income that comes from renting to tenants, usually through lease agreements that last one to five years." That strategy is looking pretty good right now, because corn and soy prices have fallen while land rents remain stubbornly high. Between 2010 and 2012, the value of UBS's US farmland portfolio jumped from $192 million to $415 million.
Another major player, particularly in California, is the Hancock Agricultural Investment Group, which is investing heavily in land suitable for growing export crops for East Asia's rising middle classes, like nuts and wine grapes. Hancock Agricultural Investment Group owns 290,000 acres of US farmland—nearly 40 percent of which is devoted to almonds, pistachios, walnuts, and macadamia nuts, all of which have found a booming export market in Asia in recent years (wine grapes, also a hot export product, make up another 8 percent of its holdings). According to its Investment Strategy, HAIG leases the land it owns that is devoted to "row" crops like vegetables and corn. But for "permanent" crops like tree nuts—with the help of Farmland Management Services, a national farmland management firm with primary offices in Turlock, California, and Champaign, Illinois—HAIG tends to "directly operate" the land in order to "maximize income returns." Translation: It figures that the large profit potential associated with hot export products offsets the inherent risks of farming.
Overuse of water in California's Central Valley has caused a landmass twice the size of Los Angeles to sink 11 inches per year.
Of course, one advantage of owning farmland in California's is its Wild West water-pumping regulations. California's Central Valley, now parched by its worst drought in 500 years, is the site of much of that booming nut production. Almonds and pistachios are thirsty crops, as my colleagues Alex Park and Julia Lurie recently showed, yet acreage devoted to almonds rose by more than 25 percent between 2006 and 2013, while pistachio acres jumped 50 percent over a similar time frame.
For about a decade, Central Valley farmers there have been pumping groundwater much faster than it can naturally be replenished, to make up for reduced irrigation flows from the state's rivers and streams, researchers at the University of California Center for Hydrologic Modeling recently found. The trend has dramatically increased since the current drought's onset in 2011, the team says. The overpumping has gotten so bad that 1,200 square mile swath of the Central Valley—a landmass more than twice as large as Los Angeles—has been sinking by an average of 11 inches per year, a 2013 US Geological Survey study found. And here's the kicker: USGS hydrologist Michelle Sneed, who worked on the study, tells me that it's not on land owned by family farms that most of the water sucking in the part of the Central Valley is occurring; rather, she said, it's on land owned by large finance firms.
She added that the switch from row crops like broccoli to tree crops like nuts have worsened the situation, because crop growers can fallow fields during a drought, while nut growers have to keep their trees watered or risk losing them altogether. The pumping frenzy is made possible by a regulatory free-for-all—Peter Gleick, president of the Pacific Institute, a leading think thank on water issues, says California has no statewide limits on how landowners can exploit the water under their land—a state of affairs he calls a "recipe for disaster."
Wall Street's move onto farms comes at a time of severe ecological flux that will be exacerbated by climate change. On top of deepening water woes in California—where half of US-grown fresh produce comes from—there's a slow-motion, largely invisible soil crisis brewing in the Midwestern grain belt, which I wrote about here. Who would you trust more to navigate these challenges sustainably—farmers looking to pass on productive land to their kids, or financial managers operating under pressure to deliver short-term profits to investors?
New York Times
Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities
By ALEXANDRA STEVENSON
His boots were caked with mud when Thomas S. T. Gimbel, a longtime hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him.
Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.
He is the man on the ground for a group of investors — including New York’s biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company.
Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin.
But in the latest twist, a small but growing group of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.
Farmland Partners and the Gladstone Land Corporation, two real estate investment trusts that also own and lease farmland, are already trading on the Nasdaq stock exchange.
For now, American Farmland is a private company, and its founder, D. Dixon Boardman, is pitching the vision to Wall Street. Corn, cotton, lemons, walnuts, avocados: If it grows in the ground and has an attractive income stream, he is peddling it.
“It’s like gold, but better, because there is this cash flow,” Mr. Boardman said. The income stream comes from the rent farmers pay American Farmland and also often includes a share of the revenue from the crops. The company buys farms with permanent crops like almonds and avocados and row crops like cotton and corn.
Down the line, if American Farmland follows the same path as Farmland Partners and Gladstone Land and lists on a public exchange, Mr. Boardman will have another audience to pitch his vision to: ordinary investors.
American Farmland has spent $131 million on 16 farms and more than 11,000 acres of tillable land — the equivalent of 13 Central Parks. It’s a small start, but Mr. Boardman, Mr. Gimbel and their partners have large ambitions.
They are competing with investors that have huge war chests. Alaska’s state pension fund, for example, had $485.9 million invested in farmland in 2013. The world’s biggest asset manager, BlackRock, has $180 million of its clients’ money in an agricultural fund, according to Preqin.
The latest wave of interest was generated by the 2008 financial crisis. As global food prices soared and opportunities to buy land abounded, investors like BlackRock, Whitebox Advisors, Ospraie Management and George Soros’s hedge fund, Soros Fund Management, offered their clients ways to invest in the heartland. Investors were wary of the exotic sliced-and-diced securities that had contributed to the crisis, and farmland seemed more tangible.
“It was a major inflection point,” said Philippe de Lapérouse, managing director for the agriculture consulting firm HighQuest Partners. “At that time, investors were looking at farmland as an attractive asset to hold.”
Many individual investors were soon presented with a different challenge: Farmland can be difficult to sell quickly. Some hedge funds stopped offering agriculture investments. But the flow of money from some of the country’s largest pension funds has remained steady.
Wall Street’s foray into farmland may present its own challenges. Shares in Farmland Partners and Gladstone Land have been volatile, indicating investor uncertainty. “It’s a question of whether it is really in the long term something that’s going to appeal to investors,” Mr. de Lapérouse said.
Mr. Boardman and his partners — among them Harrison T. LeFrak, of the LeFrak real estate empire in New York; Alfonso and Pepe Fanjul, the Cuban-American owners of a sugar conglomerate; and William von Mueffling, the founder of Cantillon Asset Management — think it will.
Mr. Gimbel said, “It’s unlike any other asset class.”
American Farmland teamed up with Prudential’s agricultural investment arm, Capital Agricultural Property Services, which runs a farm management and real estate brokerage business. The unit provides loans to farmers and manages farmland, giving American Farmland access to information in an often opaque real estate market.
“I was not about to put on my Wellington boots with my pinstriped suit,” Mr. Boardman said.
American Farmland and other Wall Street firms could soon crowd the heartland.
“I probably have a call from an interested party once a day, someone who has never invested in farmland,” said T. Marc Schober, a partner at Colvin & Company, which connects buyers and sellers of farmland.
Todd H. Kuethe, an assistant professor of land economics at the University of Illinois, said that at agriculture conferences, which were once the domain of farmers and industry insiders, a majority of participants are now institutional investors, venture capitalists and hedge fund managers.
“The share of bank and financial representatives who really want to know what is going on is now surpassing farmers,” Mr. Kuethe said. “I think there are more folks sitting around with money to buy than there is farmland.”
The few metrics that exist have helped lure many. National net farm income, considered a bellwether, is forecast to hit a record high of $130.5 billion for 2013, according to the Economic Research Service of the Department of Agriculture. The figure for 2014 is expected to soften to about $95.8 billion.
The value of farmland in the United States has appreciated on average by 8.4 percent over the last year and 4.7 percent annually since 1990, according to an index from the National Council of Real Estate Investment Fiduciaries. Taking into consideration the income generated by crops, the total average return was 17.4 percent over the last year and 11.9 percent annually since 1990.
But not everyone thinks farmland values will continue to rise endlessly.
“You can certainly overpay for farmland, and if crop prices declined for whatever reason — for example because of some type of natural disaster — there are all sorts of reasons why, all of a sudden, the income stream does not support the price you paid for a piece of land,” said Jeffrey R. Havsy, director of research for the council.
And as the financial world’s interest in farmland grows, some observers have raised concerns about the new landowners’ switching to crops that pay better but that work the soil too hard and use up precious resources like water. In California, for example, a recent move toward nut trees has put pressure on already constrained water resources during a severe drought.
These concerns are likely to increase as more farmland changes hands from farmers to corporations.
But to Mr. de Lapérouse, whose HighQuest Partners started Global AgInvesting, a series of conferences that take place in Dubai, London, New York and Singapore, the current level of interest is just the beginning.
“Less than 1 percent of global farmland is owned by institutional investors,” Mr. de Lapérouse said. “So even if you quintupled that, it would be a major sea change, but it’s still only a little territory.”
U.S. farm bill holds crop insurance coverage steady for 2014
* USDA still pays up to two-thirds of insurance premiums
* Direct cash payments to producers are gone
* Crop insurance becomes the main safety net for producers
By Christine Stebbins
CHICAGO, Feb 19 (Reuters) - U.S. farmers and bankers have almost a year to get ready for major changes in 2015 as crop insurance rather than direct cash payments to producers becomes the centerpiece of farm policy under the five-year farm bill signed by President Barack Obama earlier this month .
For 2014 plantings, analysts said there will be no major changes to crop insurance except sharply lower grain prices than in 2013, which will lower potential payments and premiums. Then in 2015, farmers will have a new insurance option for supplemental coverage based on local county yields.
"Other than commodity prices there is not a lot of difference between 2014 and 2013," said Michael Barrett, senior vice president for crop insurance at Farm Credit Services of America, one of the biggest lenders to farmers in the Plains states. "The structure of the policies is pretty much the same. The cost sharing for the premium didn't change."
But this year will be a major transition for bankers, insurers and farmers, he said.
"The message is crop insurance does become the foundation of the farm bill and the primary safety net for producers because they have lost all those direct payments," Barrett said.
The farm bill was delayed for nearly two years by wrangling over proposed cuts in food stamps and other aid for the poor, which will still account for 75 percent of the estimated $956 billion budget over 10 years.
But for farmers, the key debate was crop insurance. Among the burning issues were what is covered, who pays and how much, especially after five years of record farm earningsand two years after the worst drought in half a century.
The U.S. Agriculture Department has traditionally subsidized farmers' insurance costs for planting crops from grains and oilseeds to cotton, peanuts, fruits and vegetables. But it also bolstered farm finances through complicated systems of direct cash payments for farmers who signed up for programs like conservation policies.
"That has changed," said Chris Hurt, extension economist at Purdue University, who said that previous farm bills' automatic payments, regardless of good times or bad times, had been doomed politically. "This program does shift us back to counter-cyclical. It will be some kind of need, whether low yield or low revenue, to get payments.
"That keeps urban legislators feeling more positive about a program for both social and farm safety nets," said Hurt.
Dale Moore, executive director for public policy at the American Farm Bureau Federation, said: "What we've seen over the past couple of decades regarding the trend in farm policy is a highlight of this bill: moving farther away from the income transfer programs toward an insurance model."
HIGH RISK, HIGH SUBSIDIES
Bankers and analysts said the key element of crop insurance - how much the government will subsidize farmers' insurance premiums - had not been weakened in the long budget wrangle. USDA will still pay up to two-thirds of the price for crop insurance premiums, with the subsidy going directly to the insurers.
"Generally the cost sharing is about 60 percent by USDA," said Barrett, using a premium example for farmers in Nebraska of $60 an acre "where they are paying $22-24 an acre out of their pocket."
Farm bankers and farm industry groups argue that the weather risk in farming, aside from any crop pests or disease, requires substantial insurance aid for farmers.
"Without government backing, it is unlikely that any insurance company would offer the coverage because the risk is too high," the National Corn Growers Association said in a statement. "Most farmers in the Midwest have paid far more in crop insurance premiums than they have received in claims."
Gary Schnitkey, extension economist at the University of Illinois, said that since the farm bill does not change any crop insurance programs for 2014 from 2013, most grain farmers in Illinois, the No. 2 corn and soybean state behind Iowa, will use a standard revenue protection (RP) policy covering 80 to 85 percent of projected earnings, based on historical yields and prices.
Asked if bankers, with the recent drought, would demand that grain farmers buy crop insurance before obtaining loans for planting, Farm Credit's Barrett said: "Each loan request is looked at on its own merit. There are some loans that we would require crop insurance. But we cannot require that they purchase crop insurance from us."
For the 2012 crop, a drought year, insurance payments totaled $17.4 billion, or 12 percent of USDA's annual budget of about $150 billion. In 2013, with a bumper harvest, payments were $10.7 billion. (Editing by Matthew Lewis
San Francisco Chronicle
Large farms' crop insurance subsidies criticized
Washington -- An unidentified farm in Kern and Kings counties received $1.64 million in government subsidies to buy crop insurance last year, according to data released Thursday by the Environmental Working Group, an organization that opposes such payments to large farms.
In 2000, Congress prohibited public disclosure of the names of farmers who receive subsidized crop insurance, a program that has quadrupled in size since 2002, to $9 billion last year. The Congressional Budget Office projected the program will cost $90 billion in the next decade.
The environmental group obtained more than a million insurance records under a federal Freedom of Information Act request. Each record specified the amount of the subsidy, the location of the farms and the crops insured.
This month, the Senate is set to debate a farm bill covering the next five years that would make crop insurance the chief form of support for agriculture instead of traditional subsidies for specific crops.
The measure would expand the insurance subsidies significantly and add a new entitlement program to guarantee the revenue of certain farms.
Information on who gets crop insurance subsidies "should have formed the foundation of the debate" on the new farm bill, said Ken Cook, president of the Environmental Working Group.
"But scarcely a word in all of the hearings and all of the deliberations was focused on any of these important details: the tremendous concentration of benefits which this data definitely establishes, the fact that some beneficiaries are receiving a huge amount of subsidy from taxpayers, and the fact that we don't know who these beneficiaries are."
The analysis showed that the subsidies are concentrated on large farms, mainly the same ones that received traditional subsidies for corn, soybeans, wheat, dairy, cotton and rice.
But unlike older subsidies, crop insurance also showers huge benefits on some large California produce farms, the analysis showed. The unidentified farm in Kern and Kings counties insured 105,346 acres, mostly for cotton but also for tomatoes and safflower.
The second-largest subsidy recipient in California collected $934,691 in premium subsidies for more than 23,000 acres of almonds in Kern and Madera counties.
Large farms benefit
The third-largest California recipient collected $867,861 in premium subsidies for growing almonds, prunes, walnuts and forage on 24,795 acres across seven counties stretching from Riverside to Tehama.
The government pays an average of 62 percent of a farmer's premiums and additional subsidies to insurance companies and agents, according to a report by the Government Accountability Office.
Thousands of dollars in premium subsidies went last year to growers of fresh apricots, peaches, nectarines, grapes, plums, cherries, blueberries, onions and potatoes, the new analysis showed.
Crop insurance is not well suited, by and large, to the irrigated vegetable crops that dominate California agriculture, or for organic crops that sell at a premium.
About 80 percent of farmers using crop insurance received an average of $5,000 in subsidies last year, indicating that the program, like traditional crop subsidies, skews its benefits to the largest farms. Twenty-six farms nationwide received more than $1 million each.
Backgrounder #2815 on Agriculture
Proposed New Farm Programs: Costly and Risky for Taxpayers
By Daren Bakst
The 2013 Senate and House farm bills add costly new subsidy programs. These new programs would go well beyond providing a safety net for farmers by protecting them from virtually all risk. Some of the programs, allegedly designed to cover major losses, are so generous that they would effectively provide guaranteed payments to some farmers. Many of the cost assumptions for the new programs are based on commodity prices staying at or near record highs. If these prices come down to their longer-term averages, the costs to taxpayers could be astronomical. Congress is gambling taxpayer money on risky assumptions.
The Senate recently passed its farm bill and the House is expected to take up its bill in mid-June. Both farm bills take important steps by eliminating some costly farm subsidy programs, including the direct payment program. However, Congress is playing a shell game. Both bills offset the benefits of eliminating the programs by adding new farm subsidy programs that could prove to be even costlier than the programs they are replacing.
Many of the cost assumptions for the new programs are based on commodity prices staying at or near record highs. If these prices come down to their long-term averages, the costs to taxpayers could be astronomical. Congress is gambling taxpayer money on these risky assumptions. As it is, these new programs make little sense when cutting costs should be a priority. In addition, these programs have little to do with providing safety nets for farmers and everything to do with ensuring that farmers have virtually no risk.
Proposed Programs for Elimination
The House and Senate bills would eliminate the direct payment program, the counter-cyclical program, and the Average Crop Revenue Election (ACRE) program. The direct payment program provides payments to farmers of certain commodities based on past production and fixed payment rates. It is also a program that should have been eliminated years ago and remains a model of government waste. Farmers receive payments regardless of whether they grow anything. From 2003 to 2011, almost 25 percent of total direct payments went to farmers who did not grow the crops for which money was allocated. Even some fallow farms, those farms that did not grow any crops at all on their land, received direct payments.
The counter-cyclical program provides payments to farmers when a commodity price falls below a target price set in statute. The ACRE program was developed as an alternative to the counter-cyclical program, and payments are made when state-level revenue falls below a minimum level and the producer experiences a revenue loss. Yet, the proposed farm bills do not stop with the elimination of these programs—both bills add new programs that could be even costlier.
Crop Insurance Expansion
The costliest farm program is not the direct payment program, but the crop insurance program. The price tag for taxpayers is skyrocketing and needs to be reined in. The average annual cost of the program from 2000 to 2006 was $3.1 billion. This amount more than doubled to $7.6 billion from 2007 to 2012, and is expected to grow to $8.9 billion from 2013 to 2022.
There are bipartisan efforts to reduce these costs, including from President Barack Obama. Yet, both bills would take the irresponsible step of actually increasing the costs of crop insurance. The Senate bill would increase crop insurance costs by $5 billion and the House bill would go even further by increasing the costs by $8.9 billion. There are two new programs in both bills that drive this cost increase: (1) Supplemental Coverage Option (SCO) and (2) Stacked Income Protection for Cotton (STAX).
Supplemental Coverage Option (SCO). This new program would enable farmers who have already purchased crop insurance to add additional coverage that would protect up to 90 percent of their crop revenue. Taxpayers pay 62 percent of the premiums that farmers receive under the current crop insurance program. For the additional SCO coverage, taxpayers would subsidize 65 percent of the premium.
Stacked Income Protection for Cotton (STAX). This program for cotton growers would provide protection for up to 90 percent of their revenue. Taxpayers would pay 80 percent of the premiums.
Shallow Loss: Agriculture Risk Coverage and Revenue Loss Coverage
In addition to the expansion of the crop insurance program, there are major new programs that would be added to cover “shallow” losses. They represent a major shift in how the farm bill operates. The concept of a safety net for farmers who suffer significant losses is being trumped by a new model of protecting farmers from virtually all risk.
All businesses face risks, which serves as a valuable way for them to identify new ways of improving operations and competing more effectively. Taxpayers should not be on the hook for minor losses or to help eliminate competitive challenges that drive innovation in the agricultural sector. The Senate’s Agriculture Risk Coverage (ARC) program and the House’s Revenue Loss Coverage (RLC) program are the primary shallow loss programs in the farm bills that would drastically reduce all risk.
The Senate’s ARC program would make payments to farmers when crop revenue falls below 88 percent of average recent commodity prices. The House’s RLC program works in the same manner but covers crop revenue when it falls below 85 percent of this revenue level. Farmers do not have any “skin in the game” when it comes to these new programs. Taxpayers subsidize all the costs.
These shallow loss programs are not insurance programs, unlike how they are commonly described. They are straight payment programs. Both programs fall under the commodity title, or section, of the farm bill, not the crop insurance title of the bill. There are also no premiums or other components characteristic of an insurance program.
Risk Distortion. When the level of revenue coverage is so high, farmers would feel more emboldened to take risks that they otherwise would not take. After all, they are not paying for this extra coverage that covers even minor losses. Even the American Farm Bureau Federation (AFBF) was recently concerned about shallow loss programs. As the AFBF wrote in an October 17, 2011, letter to the House and Senate Agriculture Committees:
Our biggest concern is that by reducing the risk of shallow losses, farmers may be encouraged to take on more risk than they would in response to market signals alone. This is basically analogous to the classic moral hazard problem of insurance. Insured individuals may engage in riskier behavior than they would if they weren’t insured.
In the same letter, the AFBF also explained why such programs are questionable in value, and effectively acknowledge that a shallow loss program is not a safety net for farmers:
A shallow loss program is a drastic departure from any previous farm policy design. Federal farm programs have traditionally existed to help farmers survive large, systemic losses. Shallow losses, however, can arise from a variety of systemic or individual sources and do not typically jeopardize the survival of a farm operation.
A Gamble on Costs. The Congressional Budget Office (CBO) projects that the Senate’s ARC program would cost $23.7 billion from 2014 to 2023. The bigger problem with the CBO estimate is that it presumes that commodity prices will stay at or near record highs.
Congress is irresponsibly gambling on this assumption. The tax burden on Americans is already high, and the economy is still weak. This is no time to effectively flip a coin and hope that the gamble does not further exacerbate the financial well-being of American families. If the prices decline to more historic levels, taxpayers will be on the hook for much more money. A recent American Enterprise Institute study examining the Senate’s ARC program in the 2012 farm bill, which was similar to what is being proposed this year, found that the program could cost as much as $7 billion annually based on the 15-year historical average price.This is in contrast to the CBO’s projection of an average cost of about $2.9 billion per year from 2013 to 2022.
Reference Price Programs: Adverse Market Payments and Price Loss Coverage
As if the shallow loss programs were not enough, the House and Senate bills also include new income-support programs that would likely provide guaranteed payments to certain farmers. The Senate’s Adverse Market Payment (AMP) program and the House’s Price Loss Coverage (PLC) program are new commodity programs that provide payment. to farmers when commodity prices fall below a certain level (the “reference price” established in the bills).
These payments are allegedly intended to cover deep (major) losses. According to the House Agriculture Committee, regarding its reference price program, “Price Loss Coverage (PLC) is a risk management tool that addresses deep, multiple-year price declines.” This is far from the case, though. If this were true, reference prices would be set well below projected prices so that payments would only be triggered in the event of a major loss.
However, with both bills, the payments are not limited to deep losses. The reference prices for rice and peanuts are set at extremely high levels that would cover shallow losses. (See Chart 1.) In fact, the reference prices for peanuts in both the House and Senate bills are so high that new payments to peanut farmers would be provided right from the start, based on CBO-projected prices. (See Chart 2.) The program is essentially set up to trigger payments for peanut farmers. They would be winning the farm bill lottery at the expense of taxpayers.
The Reference Prices. The Senate bill establishes reference prices for commodities based on recent average prices. Rice and peanuts, though, are given preferential treatment. The Senate bill establishes fixed reference prices in statute for rice ($13.30/hundredweight (hwt)) and peanuts ($523.77/ton). If the formula for setting reference prices for other commodities were applied in the same manner to rice and peanuts, their reference prices would be much lower: rice ($8.03/hwt) and peanuts ($283.43/ton). This amounts to a rice reference price that is 40 percent higher than if the regular commodity reference price formula was used, and a peanut reference price that is 46 percent higher.
While it is hard to imagine, the House bill is even more generous than the Senate bill, and sets fixed reference prices for all the affected commodities. Rice and peanuts would receive even more favorable treatment in the House bill with reference prices of $14/hwt and $535/ton, respectively.
Guaranteed Payments. The average price for rice is projected to be $14.27/hwt from 2014 to 2018.The reference prices for rice are set so high that they would cover even very minor losses. As shown in Chart 1, the projected prices for rice are 98 percent of the House reference price and 93 percent of the Senate reference price. The average price for peanuts is projected to be $500/ton from 2014 to 2018, which means the reference prices are higher than projected. The reference prices for peanuts are set so high that they would result in payments to farmers in each year between 2014 and 2018, based on the CBO’s projections (Chart 2).
There could be payments for other commodities, too, depending on prices. For example, the rice reference price, as with peanuts, could easily be higher than actual prices. In 2012, the CBO projected the price of rice to be $13.19/hwt for the same time period. This would have meant that the rice reference prices in both bills would have been higher than the projected price of rice, thereby triggering payments. Senator Pat Roberts (R–KS) captured the problem with reference or target prices, as explained in a recent article: “‘This [Senate farm bill] is not a reform bill. This is a rearview mirror bill,’ Roberts said. He singled out the target prices set for rice and peanuts as more than equal to the cost of production—‘essentially guaranteeing that a farmer profits if yields are average or above average.’”
Senator Roberts was only speaking about the Senate bill’s reference prices, not the House bill that puts the Senate bill to shame when it comes to spending taxpayer dollars under reference price programs. Both the House and Senate bills would employ the reference price system as a means to eliminate virtually all risk. When reference prices are set so high, Congress is taking a bad gamble at the expense of taxpayers who will pay to make up for lower than expected prices.
No New Programs
While the House and Senate bills do eliminate flawed farm subsidy programs, they replace the programs with numerous new programs that are even worse. There is already more than enough of a safety net for farmers. When the need for cutting government spending is so important, there should be concrete and predictable measures to achieve this objective. These new programs are like a blank check that could stick taxpayers with costs that far exceed current projections.
Congress should not ignore the interests of taxpayers. It should protect their interests by cutting costs as opposed to gambling with taxpayer dollars. The new shallow loss and revenue price programs are costly gambles. If prices do not stay at or near record highs, taxpayers will be the ones paying for this ill-conceived bet.
If Congress truly wanted to help farmers, it would abolish all central-planning policies. This would free farmers from contradictory subsidy programs that tie their hands and limit their ability to use their land as they deem fit. Farmers, consumers, and taxpayers would reap the benefits.
—Daren Bakst is Research Fellow in Agricultural Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation
Crop Insurance Coverage Details
50+ Senior Life Insurancelife.insurance.com2014 Senior Life Quotes Low as $15. $250K in Coverage, Get Free Quotes!
Allstate® Car Insuranceallstate.com/free-quote/Drivers Who Switched Saved $498/yr. Quote Free with Allstate® Today.
Crop insurance policies fall under two primary categories: crop hail insurance and multi-peril crop insurance. Crop hail insurance is limited to losses due to fire and/or hail. Multi-peril crop insurance (MPCI) provides extensive coverage for losses from weather to pests and even loss of revenue. In many cases, multi-peril policies are subsidized and backed by a federal reinsurance program.
There are several options available for an insured crop severely damaged by drought as many insurers change policies due to climate changeconcerns.
The first option is to do nothing out of the ordinary. Wait out the season to see what will finally happen. When the crop is finally harvested, yields should be reported to the crop insurance company and the insured would receive any indemnity for reduced yields.
A second alternative for corn is to harvest the crop as silage.
"However," insurance expert Ray Massey, economist with the Commercial Agriculture Program, says, "before harvesting corn planted for grain as a silage crop, the farmer must first contact his insurance company and ask that an adjuster come to determine yield in the field. The adjuster may make a determination of yield upon inspection of the field or may ask that a strip be left until harvest, which will be used to determine the yield of the field. Once the insurance adjuster has determined how to estimate expected yield, he will be able to give permission to harvest the crop as silage."
Crop hail coverage comes in several different forms and can be added as a rider to a MPCI policy. The extent of coverage depends on the type of crop insured. A crop hail policy may also provide coverage for losses caused by fire, lightning, wind (when accompanied by hail or when added as an endorsement to a policy), vandalism or malicious mischief. Coverage for the crops during transportation and storage may also be available. Crop hail coverage is regulated by the state insurance departments. It is not part of a federal government program.
The Federal Crop Insurance Program
There is a federal program providing a variety of multi-peril crop insurance products. The Federal Crop Insurance Program was created in 1938. Today the RMA administers the program, which provided policies for more than 255 million acres of land in 2010. Insurance companies selling MPCI coverage must be licensed by the RMA.
Unlike other types of insurance, crop insurance is dependent on established dates that apply to all policies. These dates are determined by the RMA ahead of the planting season and published on its website. Dates vary by crop and by county. These are the important dates farmers should expect to meet:
· Sales Closing Date – All crop insurance applications for the designated county and crop are due by this date.
· Final Planting Date – Crop must be planted by this date; a penalty is placed on the amount of coverage for each day late.
· Acreage Reporting Date – Acreage report includes a list of crops planted, number of acres planted (each crop), and share of crop (if ownership is shared).
· End of Insurance Date – Crop is no longer covered after this date; losses must be reported before this date.
· Termination Date – This is when a policy premium must be paid. (Note: Premiums are generally due the fall after the crops are planted.)
Crop insurance applications are very detailed and must be filled out completely and accurately to ensure correct coverage. Because a MPCI policy is subsidized and reinsured by the federal government, any inconsistency with information filed with other agencies (such as the Farm Services Agency) could result in a denial of claim. When filling out an application, expect to have to choose an insurance plan type, coverage and price levels, and a unit structure.
Insurance Plan Type – A basic crop insurance policy is called catastrophic (CAT) coverage. Premiums for these policies are completely subsidized by the federal government; the farmer is only responsible for an administrative fee. Coverage by this basic policy provides 50/55 coverage –or claim payment on losses in excess of 50% of normal yield, equal to 55% of the estimated market price of the crop. Coverage is assessed based on the farmer's actual production history (APH). CAT coverage may not be available for all types of crops.
Provisions beyond the basic CAT policy are considered “buy up” coverage. In addition to increasing the standard CAT percentages for additional catastrophic coverage, a farmer can buy up protection against wider yield or revenue losses.
Yield insurance protects against production losses and can include coverage for losses due to natural causes, declining value due to yield shortfall and even losses based on county averages instead of individual production history.
Revenue insurance protects against lost revenue caused by declines in yields or prices. These products combine production guarantees with a price guarantee to create a target revenue guarantee. In 2011, the RMA combined its most often selected revenue products into a single Common Crop Insurance Policy (COMBO). This policy combines Crop Revenue Coverage, Revenue Assurance, Income Protection and Indexed Income Protection into a single uniform policy.
Crop policies are highly adaptable by a wide range of policy endorsements and other options that a licensed insurance agent can help farmers understand.
Coverage and Price Levels – These two levels help determine premium and are used to determine a guarantee per acre. Coverage levels vary by plan type, but typically begin at around 50% and increase in 5% increments. A farmer's APH multiplied by the level equals the policy guarantee or coverage. For revenue plans, farmers can also select a production price level which determines the guarantee as revenue. Generally, higher coverage levels result in higher guarantees and higher premiums.
Unit Structures – This selection determines how the crops on a farm are parceled out for the purpose of the insurance coverage. There are four types of units: optional, basic, enterprise and whole-farm. Optional units cover production by serial number and require a farmer to keep production separate. Basic units insure production by crop, county (or parish) and entity/share.
Insurable interest in the proposed crops is determined with an acreage report included with the application. The report must include the total acreage, the percentage ownership shares, the name of all landowners and the plant date. High-risk acres should also be identified.
Crop Damage Claims Issues
There are many variables that can trigger a claim on a crop insurance policy from adverse conditions that prohibit a farmer from planting to damaging weather that eradicates part of the yield. When a crop is damaged by a covered peril, it is the farmer's responsibility to notify their insurance agent or broker. Do not destroy or replant before a crop insurance adjuster has surveyed the damage.