There are so many things to dislike about the five-year, $480-billion farm bill making its way through Congress that it’s hard to know where to start. Cutbacks in federal nutrition assistance? Inadequate investment in agricultural research? Policies that favor prosperous farmers of commodity groups over those growing fruits and vegetables? This bill is about as good an example of crony capitalism as you could want.
But perhaps the worst feature of this bad bill is the ongoing expansion of federal crop insurance, a program that cost $7.3 billion last year and is sure to cost more in the future. I’ve become familiar with crop insurance because I helped a nonprofit journalism group called the Food and Environmental Reporting Network, where my friend Sam Fromartz is the editor-in-chief, edit a story about crop insurance by reporter Stett Holbrook.
Unlike, say, auto or homeowners insurance, which protect against losses caused by fires or accidents, crop insurance protects against falling revenues, no matter the reason, as well as losses from storms or pests. It also subsidizes insurance companies that write the policies. What’s more, it promotes risky behavior–like planting crops on marginal land because the insurance guarantees a payoff whether or not the crops grow. If the farmer does well, he or she prospers; if not, the farm gets a bailout paid for by the rest of us.
Stett’s story was published today at MSNBC.com. Here’s how it begins:
Here’s a deal few businesses would refuse: Buy an insurance policy to protect against losses – even falling prices — and the government will foot most of the bill.
That’s how crop insurance works.
The program doesn’t just help out farmers, however. The federal government also subsidizes the insurance companies that write the policies. If their losses grow too big, taxpayers will help cover those costs.
In the farm bill now making its way through the Senate, crop insurance will cost taxpayers an estimated $9 billion a year.
Lawmakers, farm groups and insurance companies say the program is a vital safety net, designed to keep farmers in business when bad weather strikes or markets go haywire. But critics say it’s a wasteful and fast-growing subsidy that could have perverse consequences, not just for taxpayers, but for rural lands.
You can read the rest here.
None of this is well understood by the public but, interestingly, institution investors can see that crop insurance is driving up the value of farmland. The Financial Times ran a short but fascinating story last week headlined Money managers read crop insurance harvest saying that funds that invest in farmland could be the big winners of expanded crop insurance.
The FT reports:
“I don’t know of any other business where you can insure 90 per cent of your P and L,” said an adviser to large farmland investors. “There’s a lot more understanding in the institutional world about this than you might think”.
Philippe de Lapérouse, managing director at agribusiness consultancy HighQuest Partners, compared US farms to US banks. “There’s a backer of last resort,” he said, which enhances the risk profile of a farm operation.
This won’t end well.