Crop Insurance Cutback

crop_insurance

It has been a big week for political news.  We had the election of a new Speaker of the House in Rep. Paul Ryan.  We had a Republican presidential candidate debate that was allegedly tainted by media bias.  We had a two-year federal budget deal that presumably takes debt-ceiling crises and government shutdowns off the table until 2017.  But there’s something within the budget deal that has received relatively little attention.  Lurking in this budget deal is a $3 billion cutback (over ten years) in the federal subsidies for crop insurance.

Naturally, this cut (which reportedly came as a complete surprise) has midwestern legislators up in arms, characterizing the cut as “devastating” to the crop insurance industry.  I am the son of a farmer, and I fully understand the nature of the economic risk that farmers and ranchers face.  Droughts and storms have wreaked havoc on farmers in recent years.  The federal crop insurance subsidies support the availability and affordability of crop insurance.  When I do the math, a $3 billion cut over ten years is a reduction of $300 million per year, for a program costing north of $9 billion per year, which is roughly a 3% cut.  Devastating?  Really?

Opponents argue that farmers have already endured a $12 billion cut in the crop insurance program since 2008, and a further erosion of federal crop subsidies in last year’s farm bill.  There is also the argument that this could have a long-term negative effect on the viability of the U.S. agricultural economy and our affordable food supply.  Farmers in some parts of the U.S. have been challenged with extreme droughts and I’m sure that crop insurance cutbacks must feel like yet another whack to the head for them.

As sympathetic as I am to the agricultural business, my personal skepticism about government intervention in any market causes me to wonder if it isn’t a long overdue weaning of the industry off of government supports.  I remember my father declining to participate in subsidy programs in the 1970s and 1980s that could have paid him handsomely but he felt they were “government nonsense” that served no practical purpose other than subjecting him to a myriad of government rules and bureaucracy.  These latest crop insurance cuts hardly strike me as “devastating” although perhaps the cumulative effect with previous cuts may appear to be devastating.  Then again, government economic interventions tend to be highly distorting over time and so perhaps it is time to “devastate” this free market distortion and allow the free market to work as it should once again.

Agree or disagree?

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One thought on “Crop Insurance Cutback

  1. Pingback: Unhappy Customers | Ferris State Risk Management and Insurance Academics

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