A New Season for Crop Subsidies?

Washington Post ^ | 9 January 2007 | Robert W. Klein and Gregory Krohm

[shrinkermd]

The federal government instituted crop insurance in 1938 in an attempt to end the need for ad hoc aid to farmers following disastrous droughts or floods. But ad hoc aid has not ended in the past seven decades, and the insurance program that was intended to replace it has transformed into a massive, poorly disguised crop subsidy program that provides few benefits to farmers who practice good risk management. Instead, the program rewards poor risk managers with generous subsidies at the expense of taxpayers, contrary to the fundamental principles of insurance.

To be sure, lawmakers have made several efforts to "reform" crop insurance. But each wave of legislative changes has moved the program further away from economic rationality and exacerbated its distortion of incentives and inefficiency.

...In an effort to expand program participation and reduce disaster aid, the number of insurance-eligible crops and the amount of federal subsidies going to the insurance program have increased dramatically since 1938. This expansion has come at a high cost, even in recent years; from 2000 to 2004 alone, the amount of the annual subsidy increased by 150 percent to $2.5 billion. Total federal expenditures on crop insurance are projected to increase to $3.6 billion in 2007.

The rise in crop insurance expenditures might be palatable if it were offset by a significant decline in disaster assistance payments for agricultural losses. But that savings has not occurred. Over the period 1989--2005, disaster payments averaged $3.7 billion (in 2005 dollars) annually, and there is no indication that the trend in the amount of payments is declining. From 2000 to 2005, a total of $37.7 billion has been paid in "emergency" appropriations by Congress, averaging $6.3 billion annually (in 2005 dollars).

[shrinkermd]

The problem here is easy to understand. Minnesota, Iowa, South Dakota have as many Senators as New York, California and Connecticut.

This means we rubes in flyover country take you East and West Coasters to the cleaners. Not fair. Suck it up.

Seriously, this won't change unless we change the farm state voter patterns change. To be a "conservative" Senator in the midwest means you are a Democrat who votes for farm programs. Unless the Pubbies vote similarly they lose every time.

Such is life. Time for us to suck it up as well. In the meantime this article is part of a long WP series on this subject. Quite good IMHO.

[Strategerist]

Counting the minutes till some brain-washed FReepers starts spouting off about how all these subsidies and insurance programs and whatnot are critical to keep us from starving to death.

[Dreagon]

"Counting the minutes till some brain-washed FReepers starts spouting off about how all these subsidies and insurance programs and whatnot are critical to keep us from starving to death."

What they are critical for is allowing American farmers to compete against cheap third world produce. Yes, it really amounts to protectionism and in this case I'm all for it. Agriculture is a national security industry as far as I'm concerned and deserves the protection.

[Strategerist]

It's really more competing against increased efficiency in agricultural production - it's mechanization and increased yields per acre that have put the overwhelming majority of farmers out of business.

And remember, the progress of civilization is marked by a continuing declines in the % of the population that is farming.

[greasepaint]

corn prices are way up.

are subsidies still active?
please be specific.

[Toddsterpatriot]

Counting the minutes till some brain-washed FReepers starts spouting off about how all these subsidies and insurance programs and whatnot are critical to keep us from starving to death.

Willie Green was banned.

[Toddsterpatriot]

Agriculture is a national security industry as far as I'm concerned and deserves the protection.

Yeah, because without subsidies, we wouldn't grow any food here. LOL!

[A Strict Constructionist]

Are we really competing when the US and Canada produce approximately 60% of the worlds food. Seems like we should be the Food equivalent of OPEC. Inquiring minds want to know. Also what % of all agricultural products are produced on family farms. I suspect <10%.

[Western Phil]

Clinton's freedom to farm law was enacted when produce prices were high (1996 or so)and the subsidy kick in level was set to be low enough that it was inconceivable that the price would ever get that low. It was hoped that this would get the government out of farming for ever. The Russian and Asian economies went sour (due to some extent to manipulations by our buddy Soros), the customers went away and the prices got low enough for the subsidies to become an issue. The current high price for corn comes from the ethanol stampede. If the oil price comes down enough, there will be no ethanol demand.

I am not in favor of the typical government agricultural programs, since the concept in general seems to be to buy the excess and either destroy it or to sell it back to depress the market at a later time. The emphasis needs to be to expand the market.
Historically, soybeans have be immune from government programs (production basically came effect after the New Deal) and their price is determined primarily by production levels (lower when corn prices are high) and South American production.
There are, however, many advantages to supplying our own food, instead of relying on hungry third world countries to feed us.

[Western Phil]

This article seems to be typical media half ass-ed coverage to rile up dissension among the masses. Crop insurance and subsidies are two different programs. Its not quite that simple, since it is a government program, but subsidies for participating operators kick in when the produce price is lower than a certain amount. Crop insurance is a separate program, which when required, using a commercial product, subsidized by the government in addition to the direct cost to the producer. The only advantage to ever collecting on crop insurance is to have some income when your production is low or zero due to hail, drought or global warming.

The disadvantage to having to collect is that your low production number gets averaged in with your average yield and you pay the same price (or maybe more with the increased risk) for the insurance the next year for a lower basis.