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Published February 08, 2011, 10:24 AM

Subsidies on radar for reductions

INDIAN WELLS, Calif. — Federal subsidies for crop insurance premiums could be a target for cuts as Congress tries to reduce the budget deficit and wrestles with a new farm bill in 2012, a key American Farm Bureau Federation lobbyist said Feb. 3 at the annual meeting of the Crop Insurance Research Bureau in Indian Wells, Calif.

By: Jerry Hagstrom, Special to Agweek

INDIAN WELLS, Calif. — Federal subsidies for crop insurance premiums could be a target for cuts as Congress tries to reduce the budget deficit and wrestles with a new farm bill in 2012, a key American Farm Bureau Federation lobbyist said Feb. 3 at the annual meeting of the Crop Insurance Research Bureau in Indian Wells, Calif.

Noting 69 percent of federal spending on crop insurance goes for producer premium subsidies, Mary Kay Thatcher, the American Farm Bureau’s director of public policy, said those subsidies would be vulnerable as Congress looks for money and tries to continue programs that do not have any budget baseline to continue beyond Oct. 1, 2012.

The Obama administration’s renegotiation of the standard reinsurance agreement that governs the crop insurance program cut $6 billion in 10 years from insurance company underwriting gains and from the administrative and operating payments to run the program.

Thatcher noted underwriting gains make up only 13 percent of federal spending, while the cost of delivering the program is 15 percent.

“We’re going to have to look at farmer premium subsidies,” Thatcher said.

Farm leaders and the industry should work together to figure how the cuts could be made so that various crop insurance programs still work.

She also noted that use of crop insurance varies dramatically throughout the country.

Changes likely

In an overview of the upcoming farm bill, Thatcher said most farmers would like to leave the 2008 farm bill largely in place, but that there will have to be changes because the budget baseline for 38 programs will expire.

The first program to face expiration is the permanent disaster program known as SURE, which expires Oct. 1, but Thatcher said she thinks Congress will find $1 billion to continue it for another year, so all the major farm programs expire at the same time.

Thatcher said she now views the farm program as a five-legged stool: direct payments, marketing loans, countercyclical payments, crop insurance and the permanent disaster program. All those programs have a baseline except the last one, she noted.

Other considerations

Crop insurance used to be considered separately from the farm bill, Thatcher noted, but has become so important it will be a major factor in the 2012 debate.

The most dramatic proposal is the dairy industry’s idea of reformulating current subsidies to come up with gross margin insurance, which would make payments based on the difference between milk prices and feed prices.

Some producers like the dairy proposal so much, Thatcher said, they would like to develop a payment system based on the difference between the price of pork and the price of feed. But while the current dairy program provides $100 million as a base for funding, Thatcher said, there is no budget line for pork in the farm bill.

Rice growers also are considering a gross margin insurance program based on the difference between rice prices and energy inputs, while wheat growers are considering a program based on the difference between the price of wheat and the cost of energy and other inputs.

Thatcher said regional differences among farmers continue, with Southern farmers defending direct payments farmers get whether prices are high or low and Northern farmers calling for a better crop insurance program.

About 40 percent of Americans recently polled said they think the federal budget can be balanced without cutting programs that affect them, Thatcher noted.

She said though the percentage of farmers who think there will not need to be farm program cuts is higher, she has told Farm Bureau members to expect cuts under budget reconciliation.

“Farmers don’t think the cuts mean them,” she said.

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