Minding Ag's Business

Farm Bill's Unintended Consequences

I like to believe people have good intentions until proven otherwise, but congressional efforts to promote "family farms" by imposing means testing on crop insurance eligibility seems seriously misguided. What could result instead are unintended consequences that could actually make it harder for family farmers to manage risk.

As DTN Policy Editor Chris Clayton reported today, Rep. Ron Kind, D-Wis., and other co-sponsors, are promoting an amendment to clamp down on crop insurance eligibility. It could be voted as early as today. They want to limit the premium subsidy on crop insurance to $50,000 to any one person, with Kind telling committee members that higher premium subsidies are "not economically justifiable."

Most damaging, critics want to disqualify farmers making as little as $250,000 in adjusted gross income for crop insurance premiums, in effect eliminating the 62% discount all farmers now average on their crop insurance premium costs. (Keep in mind that the past two years have been the 100-year high water mark for grain farm incomes, so even modest sized grain farms could be snagged by these provisions. Ironically, this could raise rates on a lot of family farmers just as farm prices ebb and tight breakevens make cost cutting a necessity).

I don't necessarily buy all the crop insurance industry's arguments, but losing the largest farms from crop insurance coverage will only hike rates on remaining insureds, the crop insurance industry says. It's not unlike the argument that rates for everyone should be lower when you insure the largest pool of people. Disqualifying operators with incomes over $250,000 from subsidies would be like barring the automobile drivers with the best driving records. They'll invent other products to protect themselves, but small and mid-size farmers will pay more.

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Another amendment by Rep. Jeff Fortenberry, R-Neb., would impose farm program payment limits of $250,000 per year for any one farm but also change the definition of what constitutes an "active" farmer for the purposes of farm program payment eligibility.

Farm managers say that will disqualify many of the senior citizens who provide the land and capital to farm, but aren't exactly "working" farmers. A 2012 survey by Iowa State University found more than half of the state's farmland is owned by seniors over the age of 65.

"This amendment proposes pay limits and means testing that bear zero relationship with the reality of farming and ranching today," the Crop Insurance Professionals Association alerted its members in an email today. "It also has tons of unintended consequences. For example there are going to be millions of elderly retirees who will be ineligible for the farm bill under this amendment because they are not 'actively engaged' in farming or ranching even though they share the financial risks and help out where they can. This will hurt not help the family farm."

What could happen is a definite landowner exodus out of cropshare leases--the best risk tool for farm operators--and into cash rent arrangements. 'It puts a lot of leases in jeopardy," says Mike Pfantz, vice president of Omaha-based Farmers National Company. About 38% of the firm's leases nationwide are crop share today, so a substantial number of farm tenants would be affected if the final farm bill includes those provisions

"All of these proposals are detrimental to the crop insurance program and several are totally out of left field," Pfantz tells DTN. "It seems they want to make it more of an ad hoc disaster program than insurance. It makes no sense."

George, an absentee Illinois landowner with a crop share lease, considers these amendments "the biggest issue not reported" in the farm bill. He asked not to be identified, but says his family "has enjoyed a blessed relationship with its tenant for years." He's concerned the farm bill will "re-classify absentee owners who perform some management functions for their farm, but don't actually dig dirt, as no longer eligible for 'subsidies' such as crop insurance, price support loans. (He understands direct payments are already a moot point in this round.)

George argues that the traditional sharecrop arrangement would no longer be viable for absentee owners if they had to pay the full freight for crop insurance.

Thus, if the final bill contains these provisions, "it will be severely adverse to the traditional family ownership and organization of small farms," George argues. "This seems contrary to the government's stated policy to support small family farms. Heirs of land in small farms, instead of maintaining the traditional sharecrop agreements with other small farmers as their tenants, will be forced to go to cash rental type agreements that put a heavy burden of fixed obligations on the financial capability of the small and beginning farmers, and remove the family ties to the land, the culture, the friendships, a couple more steps further away."

Like I said, this sounds like an unintended consequence. If Congress wants to save money, raise everyone's rates a bit. Don't try to social engineer insurance.

Follow Marcia Taylor on Twitter@MarciaZTaylor


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