USDA to Slash Crop-Insurance Subsidies

by Katherine Gustafson · 2010-06-15 07:00:00 UTC
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The U.S. Department of Agriculture (USDA) recently proposed slashing the federal funding that goes to crop-insurance companies by $6 billion over 10 years, reports Bloomberg.

Farmers buy crop insurance to protect their farms against natural disasters, and the federal government subsidizes private crop insurance policies to make sure that overwhelming events don't overwhelm the private system.

The administration has now decided that the enormous profits these insurance companies rake in — the average rate of return on equity was around 17 percent between 1989 and 2008, according to an August USDA report — is higher than "reasonable." The government will adjust the subsidization of the system to bring that return down by at least 4 percentage points.

The plan would cap payments for administrative costs at $1.3 billion next year, with that cap slowly rising to $1.37 billion by 2015. The plan will be adopted in 30 days, so insurance execs are scrambling to negotiate some of the details. The agenda aims to pull back dramatically on what has become a gravy train in recent years because of a rise in commodity prices that are linked to the insurance premiums, reports the Des Moines Register.

The cuts are meant to help reduce the federal deficit, said Agriculture Secretary Tom Vilsack. "This is us stepping up to the plate early and in significant way," he said. The plan, he assured insurance folks, will ensure “a fair and reasonable return” for companies, but shrinks what the USDA sees as over-the-top profits.

Crop insurance has become as big a racket as other aspects of the Big Ag universe. The industry is enormous and awash in money. In Iowa alone, there are 7,000 state agents licensed to hawk these policies, and the companies employ some 700 people to make the administrative elements of the system run.  In Iowa, farmers bought almost 159,000 policies in 2009 worth $9.2 billion in liabilities, more than farmers in any other state, according to the Register.

Yay for the government cutting back on subsidies that allow corporate interests to make huge profits on the tax-payers' backs. It's great news that Vilsack is stepping up to get this done. Now let's work on all the other subsidies for commodity crops in that big, old Farm Bill.

Photo: Jams_123 via Flickr

Katherine Gustafson is a freelance writer and editor with a background in international nonprofit organizations.
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