GAO: Crop Insurance Subsidies Cost Taxpayers Billions

Published November 16, 2014


A new study by the Government Accountability Office has found crop insurance subsidies cost taxpayers approximately $9 billion per year, and are continuing to rise.

Originally designed to help farmers in the wake of the drought that coincided with the Great Depression, federal crop insurance was little utilized until 1980, when the government began paying approximately one-third of farmers’ premiums. Enrollment ballooned further after 2000 when Congress amended the policy to pay for 68 percent (on average) of crop insurance premiums.

Beyond Insuring Disaster

Crop insurance and other subsidies no longer serve merely as a safety net in times of natural disaster, instead becoming income-support mechanisms insuring farmers against losses in both production and in price. Between 2003 and 2007, federal crop insurance costs averaged $3.4 billion per year, but between 2008 and 2012, factors such as drought and high crop prices caused the costs of the crop insurance program to increase to an average of $8.4 billion per year. In 2012 alone, the program cost taxpayers $14.1 billion.

In addition, many polices contain “harvest price options,” which in 2012 paid farmers record-high prices for corn they did not grow. These pricing options encourage farmers to plant crops on poor-to-marginal land by guaranteeing a payout regardless of actual production.

Encouraging farmers to over-insure and plow up land not well-suited for crops harms other segments of the agriculture industry, says Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund for the United Stockgrowers of America. “One of the contributing factors to the alarming decline in U.S. cattle numbers, which are now at the lowest levels since the ’50s, is that good pastureland has been plowed up to become only marginal cropland that is only profitable because of government subsidies,” he said.

Reforms Could Save Money

The GAO analysis shows modest reforms to the program could result in significant savings for taxpayers. For example, by reducing premium subsidies by just 5 percent, the federal government would have potentially saved more than $400 million in 2012, and nearly $2 billion if it had reduced these subsidies by 20 percent.

The GAO reports reducing subsidies would have a minimal impact on total per-acre production costs, usually less than 2 percent and often less than 1 percent. It would therefore have a minimal impact on the industry as a whole.

The National Crop Insurance Services, an non-profit trade association that promotes the U.S. crop insurance industry, argues crop insurance benefits society by stabilizing food prices that otherwise might fluctuate as market factors caused famers to take land in and out of production. However, in real terms, food prices have increased since the 1990s even though the government-paid share of crop insurance premiums has risen,.

Heartland Institute Senior Fellow James Taylor said, “Government crop insurance programs are just another example of government distortion in the marketplace resulting in real-world harm to taxpayers, consumers, and the environment. Congress should phase out the government’s contribution to insurance premiums.”

Taylor added, “Government would provide far more good to farmers by repealing anti-energy laws that raise fuel and electricity costs and repealing heavy-handed EPA restrictions that stifle agricultural production.”

Isaac Orr ([email protected]) is a research fellow focusing on energy issues with The Heartland Institute.