Armed with new data and an old playbook, environmentalists are taking aim at the crop insurance industry, seeking to bolster the case for a cap on premium subsidies when the Senate farm bill hits the floor in June.
At issue are government-backed premium discounts designed to make the insurance more affordable to farmers. While not truly cash subsidies, the costs have soared in recent years and fit neatly into the environmental narrative that Washington is too quick to help large-scale farm production at the expense of investments in conservation and the land itself.
The Environmental Working Group, which successfully waged a similar campaign to end direct cash payments to farmers, is again taking the lead. On Thursday, the group released a wealth of new cost data gleaned from Freedom of Information requests filed with the Risk Management Agency, which oversees the multibillion-dollar program.
The names of the individual policyholders remain shielded by law, but the numbers offer the most complete picture yet of the distribution of benefits under the current system.
In 26 cases, policyholders received an annual discount — carried on the government’s books — of $1 million or more in 2011. In 10,152 cases, it was $100,000 or more, while the vast majority of farmers received far smaller discounts averaging closer to $5,000.
“The eye-opening analysis shows crop insurance is not only very expensive,” said Craig Cox, EWG’s senior vice president of agriculture and natural resources, “but also very, very generous to large and highly profitable farm businesses.”
Corn, soybeans, wheat and cotton are among the leading beneficiaries, just as they dominate American agriculture. At the same time, fruit and vegetable growers, which account for about one-fifth of farm receipts, are disproportionately represented since their crops tend to be high priced and therefore more likely subject to higher premiums.
Potatoes, tomatoes, apples, onions and grapes accounted for 36 percent of the high-end subsidies over $1 million, which carried some irony since environmentalists have long favored such specialty crops.
At a time of high deficits, the numbers are sure to increase pressure for more savings from the insurance program — or at least a cap on the level of discounts allowed any single producer.
“The big dogs reap the big benefits,” Ken Cook, EWG’s president, told reporters in a conference call. And already in the Senate, Majority Whip Dick Durbin (D-Ill.), from the heart of the Corn Belt, has signed on to a May 8 letter with Sen. Tom Coburn (R-Okla.) calling for some unspecified cap on the insurance subsidy.
Nonetheless, the Senate bill heads in the opposite direction, creating a variety of new, highly subsidized insurance options even as it ends the system of direct payments. The commodity title is cut significantly, but crop insurance expenditures would go up by at least $5 billion over 10 years, while the conservation title is cut by almost $6.4 billion.
EWG wants to slow this legislative train. It used similar data-mining tactics with great fanfare in its long campaign against direct cash payments. And in the crop insurance industry, it hopes to have found a similar foil.
Indeed, the companies can be their own worst enemy, bragging to Wall Street of high rates of return in the midst of a troubled economy. Foreign-based multinationals now have a major stake, and there is almost a “heads I win, tails you lose” aspect to the current rules allowing companies to assign the highest-risk areas — like Texas and Oklahoma — to the government while keeping the more profitable markets in the Midwest for themselves.
In 2011, a year plagued by bad weather, about $10.8 billion was paid out to farmers who suffered losses. On a premium base of $12 billion, that left an underwriting gain still of roughly $1.2 billion, in which the government typically shares. But given the way gains are allocated state by state, it is expected the companies will get close to $1.6 billion while the government loses $400 million.
That said, crop insurance is very different from traditional cash subsidies and won’t be as easy for EWG to undercut. The premium discount is really an inside-the-government book transaction, involving no cash payment to the farmer, who must still make a hefty contribution as well.
For example, any grower who received a $1 million discount would have had to pay $670,000 in premiums out of his wallet, assuming an average rate of the government covering 60 percent of the costs. And none of that money would come back unless the farmer experiences a loss — and even then he is subject to a deductible that could run 20 percent to 30 percent.
This is borne out in a more detailed profile — provided by EWG at POLITICO’s request — of the 26 policyholders listed as having received subsides of more than $1 million. Some benefited richly, but in about a third of the cases, the growers received less back on their insurance than they appear to have paid in their own premiums.
For example, a Washington state apple and cherry operation is credited with having received a $1.3 million premium subsidy on a policy covering more than 5,000 acres of orchards and $33.7 million liability. But the same farmer paid $627,409 in premiums for the coverage and got nothing back since no losses were reported.
One respected voice in the debate is Keith Collins, a former chief economist for the Agriculture Department who helped oversee the development of the current program and is now a private adviser to the industry.
“Insurance is a program that functions more efficiently when the pool of insured producers is large and diverse,” Collins told POLITICO. “A cap on premium support risks driving low-risk producers out of the program, increasing the average risk across those producers remaining in the program, leading to higher premium rates over time.
“If the cuts are applied as caps on support,” he added, it “would inequitably affect producers of high-value crops, such as fruits and vegetables; producers in high-risk areas; and moderate-size commercial farms, when crop prices are high.”
Moreover, unlike any other subsidy program, Collins said, the government shares in the underwriting gains that help reduce the total subsidy costs.
“While the adverse weather of 2011 will likely mean no government underwriting gains in 2011,” he said, “the government had underwriting gains in every year from 2004 to 2010 and those gains partly offset the premium support. This is quite unlike the way farm program subsidies work.”
When asked last week, Coburn told POLITICO he had yet to decide what level cap he would ask the Senate to consider but his fellow Oklahoman, House Agriculture Committee Chairman Frank Lucas (R-Okla.), is cool to the idea.
Lucas said he hopes to begin marking up a version of the farm bill in late June so as to be done before the July Fourth recess. Caps on crop insurance are not part of his plan.
“Resources need to follow production,” Lucas said.