WASHINGTON — Congress should consider scaling back federal crop insurance subsidies for farmers, as higher crop prices in 2011 drove taxpayer expenses near $9 billion for the coverage, the Government Accountability Office said Thursday.
In a report prepared for Sen. Tom Coburn, the agency said taxpayers spent $2.2 million for premium subsidies for a single farm operation in 2011. In all, premium subsidies cost the government $7.4 billion last year, and another $1.3 billion was spent on administrative expenses, according to the agency, Congress' auditing arm.
Limiting the subsidies to $40,000 per farmer would have saved taxpayers about $1 billion in 2011, the agency said.
Moreover, the subsidies are among the factors that make it tougher for young farmers to enter the business since the government payments are tied to landowners and consequently drive up the value of farm land, the report says.
‘Distorted the market'
In a statement, Coburn, R-Muskogee, said, “High premium subsidies have hurt small and beginning farmers because the subsidies themselves have distorted the market.
“For instance, high subsidies have artificially increased the value of land and have created other barriers to entry and expansion. I applaud GAO for providing Congress with yet another way to save taxpayer dollars and reform government.”
Farmers purchase crop insurance to cover against a range of possible losses, including natural disasters and declines in crop prices. According to the accountability office, rising values for many crops have been driving crop insurance premiums higher; taxpayers' cost for crop insurance premiums was $2.7 billion in 2006, compared with $7.4 billion last year.
The federal government helps pay for the premiums and for the administrative costs charged by the private insurance companies. Last year, the government paid an average of 62 percent of premiums, while also paying administrative costs.
Rep. Frank Lucas, R-Cheyenne, chairman of the House Agriculture Committee, defended the subsidies and said the crop insurance program is an integral part of the federal safety net for the nation's farmers.
Lucas, who has been holding hearings across the country in preparation for writing a new long-term farm bill, said, “I do not support the repeated attacks on an actuarial sound risk management program that serves as a good example of a public-private partnership where producers pay for coverage. This proposal would discourage participation in the crop insurance program and as a result endanger its integrity.”
The U.S. Department of Agriculture also took issue with the Government Accountability Office's recommendations for scaling back crop insurance, saying caps on premium subsidies could have disproportionate impacts on some crops and affect farm credit.