The Grim Reapers of Crop Insurance

August 31, 2012

Policymakers are currently looking at ways to make the U.S. Department of Agriculture's (USDA) Farm Service Agency (FSA) more efficient. In the status quo, the FSA is too overstaffed and inefficient for its mission of delivering and monitoring various federal subsidy and conservation programs. Secretary of Agriculture Tom Vilsack has announced that 131 FSA offices will be closing, but this is not enough. With a restructuring of its mission and operations, the FSA can save taxpayers billions, says Vincent H. Smith, a visiting scholar at the American Enterprise Institute.

One proposal has been set forth by the National Association of FSA County Office Employees (NASCOE) union, which seeks to provide the federal crop insurance program through the FSA.

  • Currently, the federal crop insurance program is managed by the Risk Management Agency.
  • However, the program is being delivered by private insurance companies that sell and service the subsidized insurance products.
  • This costs taxpayers $3 billion to $4 billion annually.
  • Additionally, over 94 percent of the subsidized crop insurance policies sold to farmers last year could have been delivered over the internet without an insurance agent or company.
  • Furthermore, between 2006 and 2010, insurance companies received an average of $1.44 from the taxpayer for every $1 dollar of subsidy the farmers received.
  • But in other countries, subsidized crop insurance is less than 30 cents per dollar of subsidy.

In the face of these high costs, NASCOE claims that FSA offices can deliver the insurance program at $1.5 billion to $2 billion a year less. But even with the projected annual savings, the program has been dismissed by those in Washington. One reason is because insurance companies and agents are the most effective lobbyists. The 16 or so private companies that deliver the program want to continue receiving their $3 billion to $4 billion subsidy from the taxpayers.

The question that must be asked is whether this program is required at all. The subsidies for crop insurance do nothing more than allow farmers to adopt risky production practices because they are insulated from the consequences of their own bad decisions. Additionally, the subsidies distort the market and hurt the industry in the long run.

Source: Vincent H. Smith, "The Grim Reapers of Crop Insurance," The American, August 24, 2012.

 

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