Thursday, 19 September 2013

Crop insurance subsidizes big financial firms, not just farmers

The House and the Senate have not yet agreed on a Farm Bill, but both houses of Congress propose to shrink the role of traditional crop subsidies and expand the role of crop insurance.

Crop insurance may sound like a good thing, because it brings to mind an image of market-oriented insurance instruments that ameliorate the production and price risks of farming, much like automobile insurance spreads the risk of using automobiles.  However, the reality is far different.  Rather than merely facilitating insurance markets with actuarially fair premiums, federal crop insurance policies use taxpayer money to subsidize large for-profit insurance companies.

A report by David Lynch in Bloomberg last week explains:
The government subsidies show how a program created to safeguard the nation’s farmers has evolved into a system that in most years all but guarantees profits for insurers. In 2012, taxpayers spent $14 billion paying more than 60 percent of farmers’ insurance premiums, the companies’ operating costs and the lion’s share of claims triggered by a historic drought, according to the Congressional Research Service (.pdf).

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