Federal crop insurance bloats costs, plays favorites
 

[April 16, 2015]  By Kenric Ward | Watchdog.org
 
 Getting government out of the crop insurance business would save consumers nearly $1 billion a year.

A new study finds that the federal subsidy system is costing Americans more than they might pay in higher food prices.

“Policies are sold and serviced through private insurers, but the federal government insures company losses, reimburses administrative and operating costs, and establishes guidelines and premium rates,” explains agricultural economist Jayson Lusk.

“Producers pay only a portion of the premium; the government pays the rest,” said Lusk, who conducted his study for the free market-minded Mercatus Center at George Mason University.

Removing federal crop insurance could increase food prices, but Lusk estimates taxpayers would save about $8 billion in a year if the program were scrapped.

“Ultimately, the aggregate net gain to taxpayers — after taking into account higher food prices and the direct loss of the subsidy for producers — would be $932 million per year,” he said.

The insurance program shows how federal subsidies favor one set of producers over others, at taxpayer expense.

“Those who benefit most are best able to convince legislators to continue it. But taxpayers as a body, less able to advocate for their own interests, suffer a net loss as money is transferred from the pockets of all taxpayers through higher taxes to the pockets of producers and consumers of food,” Lusk asserts.

“That means people pay higher taxes rather than choosing to pay higher grocery bills.”

If Congress ditched the insurance program, farmers in the Plains states that produce the bulk of the food insured by the government would “lose.” Farmers in the West — notably California, Oregon and Washington — would benefit because products such as fruit, vegetables and nuts, which are not heavily subsidized, would no longer be disadvantaged.

“Consumers would pay higher prices for food if subsidized crop insurance were removed,” Lusk predicted, “but the benefit to taxpayers more than compensates for the higher food prices.”

“Taxpayers have to pay about $1.80 for every $1 in lower food prices owing to federal crop insurance,” he calculated.

Randall Anderson, who tends the Wicked Oak family farm and vineyard in Star Tannery, Virginia, said the Mercatus report was “not really surprising, but troubling.”

“As always with big government, big agriculture benefits the most. The poor are exploited and the small family farmer finds it harder to compete,” Anderson told Watchdog.org.

Kenric Ward is a national reporter for Watchdog.org and chief of the Virginia Bureau. Contact him at [phone]. @Kenricward