Subsidy makes up 69 percent of government spending on crop insurance

By JERRY HAGSTROM

For the Capital Press

INDIAN WELLS, Calif. -- The cost of the producer premium subsidy for crop insurance could reach $5.5 billion in 2011, but if Congress cuts the subsidy, farmers are likely to cut back on their coverage, officials warn.

"If you lower (the percentage of the subsidy) farmers would reduce coverage," Bill Murphy, USDA Risk Management Agency administrator, said during a speech here to the Crop Insurance Research Bureau.

Farmers are unlikely to reduce the number of acres covered because lenders would not loan them money without insurance, Murphy added.

The government subsidizes $4.7 billion of the current $7.6 billion premium.

Murphy said that if the total cost of the premiums rises to $10 billion, the government portion of that would rise to between $5 billion and $5.5 billion.

Murphy noted that as the government has increased the subsidy to farmers who buy higher levels of coverage, they have bought more. But there seems to be a limit to what farmers will spend on insurance, he said.

Murphy said farmers would lower the percentage of the value of the crop covered if the subsidy was reduced.

American Farm Bureau Federation lobbyist Mary Kay Thatcher told the crop insurance group that if Congress gets serious about controlling the deficit or needs money for other farm bill programs, the producer premium subsidy is a likely target for cuts because it is a large pot of money and makes up 69 percent of government spending on crop insurance.

The rest goes for underwriting gains for the companies and the administrative and operating expenses for delivering the policies.

Murphy said he agreed with Thatcher about the potential cuts. "Everything will be on the table," he said.

Murphy said the total number of insured acres is 256 million, with 40 percent in corn, 23 percent in soybeans, 8.2 percent in wheat, 3.7 percent in cotton and 3.6 percent in nursery products.

Since RMA changed the gross margin insurance for livestock, it has become so popular with dairy producers that RMA may spend the entire $20 million Congress has allowed for it. The National Milk Producers Federation has proposed a much larger gross margin insurance program that would use some current dairy subsidy money as the basis for its funding.

National Milk has proposed that the program be managed by the Farm Service Agency rather than private companies, Thatcher noted.

Murphy also said RMA is going to change its prevented planting rules in the 2012 crop year so that farmers can get payments for not being able to plant a crop for only three years in a row. Then a farmer would have to plant and harvest a crop for a year before getting more prevented planting payments.

Murphy said RMA changed the rules because one farmer had gotten prevented planting payments for 17 years in a row, and that farmers had begun to deal in land on the expectation of prevented planting payments. Prevented planting is an issue in Iowa, Minnesota and some other upper Midwestern states.

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