Saying the current crop insurance system is "wasteful" and needs reform, two Wisconsin Congressmen were among a group that introduced a bi-partisan bill last week to reform the government-subsidized system.
Rep. Ron Kind (D-WI) and Rep. Tom Petri (R-WI) along with six of their colleagues introduced the Assisting Family Farmers through Insurance Reform Measures (AFFIRM) Act. The AFFIRM Act makes bold reforms to crop insurance premium subsidy payments, saves taxpayer dollars and promotes transparency.
In a press call with reporters, Kind and Petri said the act would save taxpayers $11 billion over 10 years and would still provide a safety net for smaller and medium-sized farms.
"Unlike other subsidies, Congress does not know who receives crop insurance subsidies. Taxpayers deserve to know where their tax dollars are going, and the AFFIRM Act will make that possible," Kind said.
The measure would limit the total value of crop insurance subsidies to $40,000 per person each year - now, there is no cap, he said; eliminate crop insurance premium subsidies for individuals with an adjusted gross income (AGI) of more than $250,000; and require more of the administrative and operating costs to be shared by the private companies that offer coverage.
The measure would also limit renegotiation of the Standard Reinsurance Agreement and lower the "target rate of return" that USDA builds into premiums in order to guarantee long-term profitability for crop insurance companies.
If passed, the bill would promote crop insurance companies' operating efficiencies, Kind said.
A recent Government Accounting Office (GAO) report showed that the top 4 percent of recipients benefit from one-third of all taxpayer premium subsidies, Kind said. "The top 10 percent receive 54 percent of the taxpayer premium subsidies. This shows how top-heavy the current system is."
He also voiced concern that as crop insurance subsidies become more important in replacing old farm safety net programs they could run afoul of World Trade Organization (WTO) rules.
Kind said the jury is still out on whether or not crop insurance is allowable under WTO agreements. It may be considered a distorting influence on crop production.
"We got into trouble with cotton subsidies and Brazil's cotton industry over our unwillingness to change that program."
Kind said the act would promote transparency in government subsidies by requiring the reporting of all parties that receive federally subsidized crop insurance and would also cut down on waste, fraud and abuse.
"I'm delighted to be a part of this bipartisan effort to make important changes to the crop insurance program," said Petri, during the press call. "This bill provides a much-needed tightening up of the crop insurance program."
Currently, the federal government subsidizes roughly 62 percent of farmers' crop insurance premiums at a cost of $9 billion a year. But America's small farmers received only 27 percent of the subsidies, he said.
"This bill keeps in place a safety net for farmers who need assistance, while ensuring the program is not exploited at a cost to taxpayers and keeps farmers from farming for government insurance," Petri added.
The men said that from 2001-2012, crop insurance companies enjoyed $10.3 billion in underwriting gains while taxpayers suffered a net loss of $276 million.
Over 4,200 farmers received more than $100,000 in premium subsidies in 2011 and 26 received more than $1 million in subsidies.
In contrast, the bottom 80 percent of policyholders received only 27 percent of subsidies in 2011, with an average subsidy of around $5,000.
The AFFIRM Act allows family farmers to continue relying on crop insurance while ending subsidies for large agribusinesses that have the ability to manage risk without heavily subsidized coverage, they said.
Kind said the measure has the support of a wide range of stakeholders including the Environment Working Group, US PIRG, and a coalition of 12 leading conservative organizations.
Joining Reps. Kind and Petri in sponsoring the bill are Reps. Jim Sensenbrenner (R-WI), Earl Blumenauer (D-OR), Rosa DeLauro (D-CT), Jim Cooper (D-TN), Jim McGovern (D-MA), and Henry Waxman (D-CA).
"As the largest subsidy to farmers, crop insurance is in dire need of reforms to make the program more targeted and accountable to taxpayers," said Andrew Moylan, Senior Fellow with the R Street Institute.
"The AFFIRM Act does exactly that by establishing a modest payment limit and means test, by reducing subsidies for industry, and by providing full transparency. Republicans and Democrats have strong disagreements, but they should unite around this common sense legislation. We applaud Representatives Kind and Petri for leading on this important issue in a bipartisan fashion," he added.
Kind said that the crop insurance program as it stands today has a conservation impact too, because it promotes yield or revenue protections for farmers who bring highly erodible land back into production.
"A generous crop insurance program further incentivizes production on these sensitive areas absent a conservation compliance program," Kind said.
In previous farm bill debates, Kind has taken the lead in measures that would have tied conservation compliance to the crop insurance program.
As other safety net programs disappear, the government continues to load up crop insurance and it has become a new avenue for taxpayer subsidies, he added.
With last year's drought the government had 75 percent of the $17 billion in crop insurance payouts, Kind added. "This program puts taxpayers on the hook for an inordinate amount of crop insurance subsidies."
His reform package would eliminate the incentive to over insure, he said, and would not affect 96 percent of farmers, emphasizing how "top-heavy" the program is.
As it stands today the program contributes to further consolidation in agriculture as larger entities gobble up land and can protect their investment with government subsidized crop insurance, he added.
Kind and Petri said the measure could be introduced as an amendment to the farm bill currently working its way through Congress.