Crop Insurance: EWG’s New Target

For years the Environmental Working Group put the unwanted spotlight on the agricultural community with its publication of federal money going to farmers and published it online for everyone to see. Now, it’s doing the same with crop insurance payouts to bring light to why federally subsidized crop insurance costs have skyrocketed in recent years.

Crop and revenue insurance is now the primary federal support for farm income. Craig Cox, EWG senior vice president for agriculture and natural resources, said the watchdog group has been paying close attention to crop insurance for the last 18 months, mostly because of the rapid rate of growth.

In 2002, the cost of premium subsidies taxpayers helped pay was about $1.5 billion. In 2011, taxpayers paid over $5.2 billion on direct and Average Crop Revenue Election (ACRE) payments and $7.4 billion on insurance premium subsidies.

In a new analysis from EWG, the group revealed that twenty insurance companies in Bermuda, Japan, Switzerland, Australia, Canada and the U.S. were paid $7.1 billion in U.S. taxpayer funds from 2007 to 2011 to sell American farmers crop insurance policies. The U.S. Department of Agriculture’s Risk Management Agency paid these companies for administrative and operating expenses for the federally subsidized crop insurance program.

The agency also reported $8.1 billion in underwriting gains during the same period but has not disclosed how much of the gains each company received. EWG has filed a Freedom of Information Act request for this information.

Cox said EWG was surprised to the extent of foreign ownership. Switzerland-based ACE Limited was the second largest recipient of these payments raking in $1.5 billion. Australia-based QBE Insurance Group ranked third, with $832 million; and Bermuda-based Endurance Specialty Holdings Limited ranked fifth, with $446.3 million.

EWG seeking change

Last fall Dr. Bruce Babcock, economist at Iowa State University, wrote a white paper for EWG titled “The Revenue ‘Insurance’ Boondoggle” which outlines how the crop insurance program has quietly morphed from what most people would consider a safety net against crippling crop losses to a federally-guaranteed business income for what EWG sees as some of the most profitable and financially secure enterprises in the nation.

Crop policies initially focused on yield protection, paying farmers when bushels drop below a selected level. About 83% of American farms have switched to revenue protection policies because they pay whenever crop prices drop, yield declines -- or some combination of the two.

Babcock finds that the federal premium subsidy, averaged across all revenue protection policies was:

• $40/acre for corn; $16 more than the $24/acre direct payment.

• $27/acre for soybean; $15 more than the $12/acre direct payment.

• $26/acre for wheat; $11 more than the $15/acre direct payment.

• $72/acre for cotton; $38 more than the $34/acre direct payment.

Cox said EWG a better way to reform the crop insurance program would be to have taxpayers pick up the full cost of 70% yield protection policy available to all program crops. And then that would be taxpayer’s safety net. Premium subsidies for other types of insurance would end, he said.

“Producers would have more than a full suite of other insurance products [such as revenue guarantee products] available to them, but the government wouldn’t subsidize them as it does now,” Cox said.