American taxpayers should be outraged by a key detail in the farm bill being debated in Congress. Lawmakers are setting the course of the nation’s agriculture policy for the next five years, and they’re keeping the recipients of one of the biggest farm handouts a secret.
At issue: Crop insurance premium subsidies. They cost taxpayers $7.4 billion in 2011 alone. They cover, on average, 62 cents on every dollar of eligible insurance purchased. Farmers may insure up to 85 percent of their crops against damage. This lavish subsidy encourages farmers to over-insure and take excessive risks at taxpayers’ expense.
In fact, when disaster strikes and crop prices rise as a result, those farmers whose policies are linked to the price of their crops at harvest time profit even more from higher insurance payments than if they had sold their crops in markets absent a disaster.
Some of America’s largest agricultural corporations benefit the most from this handout. Premium subsidies are not subject to means tests or payment limits. Coupled with the trend toward fewer but larger farms, this has resulted in the bulk of subsidies going toward some of America’s most profitable farm businesses.
The Environmental Working Group found that the top fifth of farm recipients collected almost 80 percent of all crop insurance premium subsidies. Among these, 26 farm businesses received more than $1 million each in 2011.
Just which big farm businesses are on the federal dole? Taxpayers have no way of knowing. Congress passed a law in 2000 that protects subsidy recipients from public disclosure. Beyond shielding Congress and big farm businesses from taxpayers’ wrath, it is not clear why the names of recipients are kept secret. The names of recipients of other farm subsidies — such as commodity subsidies, which boost farmers’ incomes — are publicly available. Farm bills being considered in both chambers would repeal commodity subsidies while expanding this “secret” crop insurance.
Transparency in commodity subsidies played a big role in making these handouts difficult to politically justify today. Once taxpayers learned that these subsidies were mostly going to large landowners and wealthy farm operations, whose incomes far exceeded those of the average American, outrage rightly ensued.
Most disturbingly, some of the very same members of Congress who voted for farm subsidies were directly benefiting themselves or their family members. The Environmental Working Group revealed that 23 members of Congress or their family members benefited from $6 million in farm subsidies from 1995 to 2011.
For members of Congress to benefit directly from the very same subsidies they vote in to law creates a clear conflict of interest. The opportunity to serve their own interests over those of taxpayers is still bigger when the names of subsidy recipients are kept secret. Taxpayers have a right to know who profits off of their hard-earned money. Without transparency, taxpayers cannot hold elected officials accountable for their actions.
Participating crop insurance providers also make out big. The federal government covers the administrative and operating expenses of crop insurers, to the tune of $1.3 billion in 2011. Moreover, the program’s re-insurance rules enable crop insurers to make generous profits even during years of record payouts.
According to the USDA Risk Management Agency, in 2011, insurers made a $1.7 billion profit, while the government took an underwriting loss of about $500 million. It is no surprise, then, that crop insurers earn a 30 percent average return, compared with 12 percent for purely private insurance, as a Bloomberg analysis revealed. Several of these participating crop insurance providers are headquartered in Switzerland, Australia and Bermuda.
At this time of bulging spending and spiraling debt, it’s plainly outrageous that taxpayers are forced to part with their hard-earned cash to fill the coffers of wealthy farm owners and foreign insurance companies.
The federal crop insurance boondoggle needs reform. At the least, taxpayers should be able to find out who benefits from this government largesse and just how much they receive.
• Romina Boccia is research coordinator in the Roe Institute for Economic Policy Studies at the Heritage Foundation.