Obama wants an $18 billion federal crop insurance cut for “all of you at the top.”

By | February 16, 2016

Author:  Lyle Adriano, with our editorial comments enclosed within [brackets]   This post is a work in progress and is updated as the  story unfolds.  In response to some lively conversation about the OMB, new paragraph 4 was added.  |   February 22, 2016  |

President Obama wants a 10-year $18 billion cut to the federal crop insurance program as part of his budget proposal.

[Obama says he has a 2017 federal budget, which would be his first in eight years.  However, he again missed the February 1, 2016 deadline to present the budget to Congress and few of them are complaining.

Here is what the U.S. Federal Office of Management and Budget (OMB) has to  say in support of  the Obama budget:  “It… is about looking forward and making sure our economy works for everybody, not just those at the top.”   So, the inference is that through too much success, our farm crop producers now find themselves “at the top” of the Obama income ladder and he would cut their federal crop insurance payments to make the economy work  for the less successful.   And, he would propose this as a lame duck President in his final year, at the very time farm commodity prices are under extreme global pressure. 

Perhaps, of  a greater significance is the Federal OMB now openly promoting Obama-style Socialism,  with indifference to  our two century old free market economy.  Accounting neutrality,  a requirement and hallmark of the OMB over the years, is now disparaged by its own support of economic redistribution.  How can Federal GAP accounting principles be fairly applied in our nation when  the OMB exhibits left-leaning socio-economic bias?  Who would, or should, believe their numbers?

The OMB then follows with this heart warming statement:  It is all “about choosing investments that not only make us stronger today, but also reflect the kind of country we aspire to be – the kind of country we want to pass on to our children and grandchildren.”    Can we then trust our country to continue to “invest” in  the thousands of multi-generational farm families who, for decades, have fed the world?]

According to the Crop Insurance Reinsurance Bureau and the American Association of Crop Insurers, the President’s proposed budget will take about $1.8 billion a year from the crop insurance program.  [Yet he can gift 150 billion of our U.S. Treasury dollars to the nation of Iran without congressional approval!  His action serves as a reminder of publisher Ben Bradlee’s admonishment to Woodward and Bernstein at the time of Watergate.  To paraphrase:  “You put us there.  Nothings riding on this except… the Constitution.”]

While the term crop insurance suggests that it works just like regular insurance policies in that it allows farmers to insure themselves against crop loss and falling prices, it is actually closer to a welfare program due to the way it works.  [Well, if true, then who made it work this way?  It is surprising to this observer that a government apologist would openly label anything Federal as “welfare,” and therefore sacred as the proverbial cow.  Perhaps it is nothing more than a convoluted attempt to provide political cover for the President’s sudden push to reduce benefits.

Mr. Obama’s go-it-alone attitude and actions are now well known, but if the roles were reversed and the request to reduce benefits came from a private insurance carrier, that carrier would come under immediate federal scrutiny and coercive fines.  Just look to his Affordable Care Act for proof.  Countless individuals and private insurance companies are jumping through government health care hoops to stay afloat, each trying to adjust to an endless stream of Executive Orders and bureaucratic meddling.]

A report by the Environmental Working Group revealed that for every dollar farmers spent on crop insurance premiums the past 15 years, they  got back twice as much in payouts.

[First.  Why would a non-profit environmental lobby group “reveal” any insurance payout ratio?  You can draw your own conclusions,  but a good part of the answer lies in their mission statement.   Check it out on the Web.  They would not support an industry they believe to be destructive of the environment.  In fact, though this statement is misleading in all ways, Adriano undoubtedly found it handy in support of the Obama’ cuts.

Second.  Apart from the possibility the Environmental Group may only be feigning ignorance of our U.S. risk transfer system, premiums and claim payments will seldom be equal, nor should they be.  Our private  system has long proven itself to be an indispensable  mechanism for economic progress:   Applied to crop insurance, the  pooling of  a large number of individual crop producer risk exposures (often termed “spread loss”) on average allows a small premium to protect (insure)  a much larger  field value.

In its pure form, no government subsidies are  involved.  The subsidies come later after the politicians and bureaucrats have determined the level of government participation.  Like the crop insurance promises they made, but now can no longer keep.   So, don’t blame our farm producers for this outcome.  They just expect to receive what is authorized by the Federal Crop Insurance Act.]  

The report also noted a startling disparity in crop insurance payouts. Cotton farmers in Texas and corn farmers in Arkansas received $3 back for every dollar they paid the program from 2000 to 2014. On the other hand, soybean farmers in Illinois only got 12% more money back through the program, and the insurance program was not as profitable for those corn farmers in Indiana and Illinois.  [This exposes both political and bureaucratic crop bias compounded by a general lack of actuarial pricing oversight.]

An Iowa State University economist [correctly] argued that the Department of Agriculture is setting higher insurance premiums in the wrong areas and missing out on areas where crop failure risks are much higher, such as the Great Plains.  [Politics asidethe USDA Risk Management Agency badly undervalued the actuarial costs of weather and individual Multiple Peril Crop Insurance programs.   The Federal Flood Insurance Program is an example of another government program wrecked by constant bureaucratic meddling.  Though no play on words is intended, the flood rules change regularly  like the ebb and flow of an ocean tide.

By the wayBruce Babcock “holds the Cargill Endowed Chair of Energy Economics, directs the Bio-based Industry Center and is a professor of economics at Iowa State University.”  A voice of reason from our very own ISU.]

Babcock proposed an alternative to the current crop insurance program, wherein the government would issue grants to farmers, which they can use to purchase insurance. This means farmers will [would] have to purchase private insurance without any government subsidy. The grant would be adequate to cover crop losses, particularly if the farmers lose about 65% of their average yield per year, without actually overpaying them.  [Hmmm, perhaps we’re in for yet another sea-change.]