The Administration remains committed to a strong safety net
for farmers, one that protects them from revenue losses that result from low
yields or price declines, and strong crop insurance programs. But there are programs and places where
current support is unnecessary or too generous. To reduce the deficit, the
Administration proposes to eliminate or reduce those programs, while
strengthening the safety net for those that need it most. The Administration is
proposing to:
• Eliminate Direct Payments to Farmers. The direct
payment program provides producers fixed annual income support payments for
having historically planted crops that were supported by Government programs, regardless
of whether the farmer is currently producing those crops—or producing any crop,
for that matter. Direct payments do not vary with prices, yields, or producers’
farm incomes. As a result, taxpayers continue to foot the bill for these
payments to farmers who are experiencing record yields and prices; more than 50
percent of direct payments go to farmers with more than $100,000 in annual
income. Eliminating these payments would save the Government roughly $23
billion over 10 years and build a better farm safety net.
• Reduce Crop Insurance Subsidies. Crop insurance is
a foundation of our farm safety net. Yet, the program continues to be highly subsidized
and costs the Government approximately $10 billion a year to run: $3 billion
per year for the private insurance companies to administer and underwrite the program
and $7 billion per year in premium subsidy to the farmers. A U.S. Department of
Agriculture commissioned study found that, when compared to other private
companies, crop insurance companies’ rate of return on investment (ROI) should
be around 12 percent, but that it is currently expected to be 14 percent. The
Administration is proposing to lower the crop insurance companies’ ROI to meet
the 12 percent target, saving $1.2 billion over 10 years. In addition, the
current cap on administrative expenses is based on the 2010 premiums, which
were among the highest ever. A more appropriate level for the cap would be
based on 2006 premiums, neutralizing the spike in commodity prices over the
last four years, but not harming the delivery system. The Administration,
therefore, proposes setting the cap at $0.9 billion adjusted annually for
inflation, which would save $2.9 billion over 10 years. Finally, the Administration
proposes to price more accurately the premium for catastrophic (CAT) coverage
policies, which will slightly lower the reimbursement to crop insurance
companies. The premium for CAT coverage is fully subsidized for the farmer, so
the farmer is not impacted by the change. This change will save $225 million
over 10 years.
In addition, the Administration is proposing to reduce
producers’ premium subsidy by 2 basis points for all but catastrophic crop
insurance, where the subsidy is greater than 50 percent. This will have little
impact on producers. Most producers pay only 40 percent of the cost of their
crop insurance premium on average, with the Government paying for the
remainder. This cost share arrangement was implemented in 2000, when very few
producers participated in the program and “ad-hoc” agricultural disaster
assistance bills were passed regularly. The Congress increased the subsidy for
buy-up coverage by over 50 percent at the time to encourage greater
participation. With current participation rates, the deep premium subsidies are
no longer needed. This proposal is expected to save $3.3 billion over 10 years.
• Better Target Agricultural Conservation Assistance. The
Administration has championed programs that create incentives for private lands
conservation and has worked to leverage these resources with those of other Federal
agencies toward greater landscape scale conservation; however, the significant increases
in conservation funding (roughly 200 percent since enactment of the Farm
Security and Rural Investment Act of 2002) has led to redundancies among our
agricultural conservation programs. At the same time, high crop prices have
both strengthened market opportunities to expand agricultural production on the
Nation’s farmlands and decreased producer demand for certain agricultural conservation
programs. To reduce the deficit, the Administration proposes to reduce
conservation funding by $1.8 billion over 10 years by better targeting
conservation funding to the most cost-effective and environmentally-beneficial
programs and practices. Even under this proposal, conservation assistance is
projected to grow by $60 billion over the next decade (assuming continuation of
the current farm bill base line,)
