President Obama suggested a 10-year, $18 billion cut to the federal crop insurance program as part of his budget proposal.
The program includes meat inspection fees under the Food and Safety Modernization Act and agricultural research funding.
According to the Crop Insurance Reinsurance Bureau and the American Association of Crop Insurers, the President’s proposed budget will take about $1.8 billion a year from the crop insurance program.
While the term crop insurance suggests that it works just like regular insurance policies in that it allows farmers to insure themselves against crop loss and falling prices, it is actually closer to a welfare program due to the way it works.
A report by the Environmental Working Group revealed that for every dollar farmers spent on crop insurance premiums for the past 15 years, they got back twice as much in payouts.
The report also noted a startling disparity in crop insurance payouts. Cotton farmers in Texas and corn farmers in Arkansas received $3 back for every dollar they paid the program from 2000 to 2014. On the other hand, soybean farmers in Illinois only got 12% more money back through the program, and the insurance program was not as profitable enough for those corn farmers in Indiana and Illinois.
Iowa State University economist argued that the Department of Agriculture is setting higher insurance premiums in the wrong areas and missing out on areas were crop failure risks are much higher, such as the Great Plains.
Babcock proposed an alternative to the current crop insurance program, wherein the government would issue grants to farmers, which they can use to purchase insurance. This means farmers will have to purchase private insurance without any government subsidy. The grant would be adequate enough to cover for crop losses, particularly if the farmers lost about 65% of their average yield per year, without actually overpaying them.
