Government's share of crop insurance costs heading up
By Robert Holly and Pam Dempsey/Midwest Center for Investigative Reporting
After two years of debate, Congress passed a farm bill this year that replaced direct subsidies to farmers with an ever-increasing multibillion-dollar federal crop-insurance program.
During that time, at least 80 groups spent more than $50 million in lobbying efforts that included ensuring their interests in the often criticized program were well-represented.
Among those 80 or so groups pouring funds into the lobbying cause were crop-insurance companies, trade associations and corporations, a Midwest Center for Investigative Reporting and Harvest Public Media analysis of federal lobbying disclosure reports found.
Those groups reported spending about $52.5 million to lobby between the start of 2012 and the first quarter of this year.
Overall, the analysis found that at least 600 companies, trade groups and other organizations spent $500 million on lobbying that included the 2014 farm bill or related legislation.
It appeared all that lobbying paid off in February, when Congress finally passed and President Barack Obama signed the final version of the bill that increased the crop-insurance program by billions of dollars.
The Congressional Budget Office estimates that the farm bill will raise government funding of crop insurance by about $5.7 billion from 2014 to 2023. The office projected the total for the crop-insurance program will be about $90 billion during that time.
The increased funding of the program came despite repeated warnings from the Government Accountability Office, an independent, non-partisan agency that works for Congress as a watchdog over the spending of federal money.
"In the past, frankly, there have been some concerns that some farmers may have abused the crop-insurance program by allowing crops to fail from neglect or deliberate action in order to collect insurance," said Steve Morris, acting director for the accountability office's natural resources and environments team.
But supporters of the crop-insurance program say it is needed to reduce farming risks from bad weather, insects and other perils. The program helps pay for insurance premiums and for losses.
"We are talking about having the public in the United States make a small investment in a domestic food supply, helping assure an adequate, domestic supply of food so that we don't have to depend on anybody else in the world for our daily food, and that's a very important benefit for every citizen, every person living in the United States," said David Graves, president of the American Association of Crop Insurers.
The AACI, a trade association that represents about 80 percent of crop-insurance providers, spent at least $770,000 in lobbying activities from 2012-14.
Graves said the program is often misunderstood by the general public.
Its premiums are set by the government, which generally pays about 60 percent of the cost.
At more than $1 billion a year, taxpayer dollars also offset the cost of servicing crop-insurance policies through payments made to the nearly 20 insurance companies.
Farmers, though, may still pay thousands of dollars of their own money in premium payments.
"You don't have floods or droughts very often, and some farmers pay those premiums for years without ever collecting a nickel in the way of loss," Graves said.
As a compromise to crop-insurance expansion, Congress cut about $5 billion a year in direct payments to farmers under other programs.
These payments were given directly to farmers based on acres owned, regardless of whether crops were actually planted.
Iowa State University economics Professor Bruce Babcock said the farm bill compromise was nothing more than a different mechanism for paying farmers.
"But that became kind of hard to justify from the lobbyists' point of view because the farm income was at record levels and they were still getting checks," said Babcock, an expert in agribusiness economics. "So they had to design a new way to transfer money to farmers — and the way to transfer money to farmers, they call it crop insurance."
Crop insurance is not a needed tool to grow food, he added.
"The amount of food that would be grown in the United States would be almost identical with crop insurance as it would be without crop insurance," Babcock said.
But advocates argue the program is necessary.
In a March 2013 letter to Congress, more than 40 groups urged leaders to keep the program in place. At least 60 percent of those groups — which ranged from the American Bankers Association to the U.S. Beet Sugar Association — spent a collective $34 million on lobbying activities.
"Federal crop insurance provides an effective risk-management tool to farmers and ranchers of all sizes when they are facing losses beyond their control, reduces taxpayer risk exposure, makes hedging possible to help mitigate market volatility, and provides lenders with greater certainty that loans made to producers will be repaid," the 40 groups wrote.
Others point out that, although the crop-insurance program was expanded, it still accounts for just 8 percent of the farm bill's total spending.
They note that nutrition programs make up the bulk of the bill's budget.
"It's important to remember that food assistance is the overwhelming part of the budget for this farm bill," said Brad Lubben, an extension policy specialist at the University of Nebraska. "That's certainly a lesson for agriculture to recognize — that the balance of power here, the balance of funding certainly, is food and then farm."
Nonetheless, the Government Accountability Office continues to be concerned.
"The overall cost of the program has come under some scrutiny as the nation's budgetary pressures have been increasing," Morris said.
He said crop insurance was worth investigating for two main reasons.
"The first is the cost of the program is rising," he said. "Secondly, the quality control, the internal controls within that program itself, is not as robust as other farm programs, which, you know, tends to leave the program susceptible to fraud, waste and abuse."
As far back as 1987, the accountability office cautioned that the people who oversee the crop-insurance program needed to improve their decision making.
In 2006 and again in 2007, it advised that more needed to be done to reduce the program's vulnerability to fraud and abuse. Investigators specifically found that officials from the Risk Management Agency were "not effectively using all of its tools" to minimize the cost of crop insurance.
For example, the report stated that the agency's data on the largest farming operations in the country were incomplete. About 21,000 of the largest farming operations that used crop insurance did not report all individuals or entities with ownership interests. The incomplete data hindered the agency's ability to identify abuse, and more than $74 million could have been recovered from improper claim payments.
Furthermore, field inspections conducted to safeguard against fraud were also incomplete, the report said. Between 2001 and 2004, inspectors failed to complete nearly four out of every 10 requested inspections.
Morris said that, in some cases, the findings led to changes in crop-insurance administration.
Yet, even with its faults, farmers and advocates maintain that the programs are necessary.
"Does it cost too much? Absolutely. But we did do our part as American farmers and agriculture to reduce our budget and put money where it really mattered," said Mark Crawford, a Vermilion County farmer who grows corn and soybeans.
The Midwest Center for Investigative Reporting is an independent, nonprofit newsroom devoted to educating the public about crucial issues in the Midwest with a special focus on agribusiness and related topics such as government programs, environment and energy.