Minding Ag's Business

Farm Bill's Unintended Consequences

By Marcia Zarley Taylor , DTN Executive Editor

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.

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

 

Comments

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John Olson 6/23/2013 | 7:38 AM CDT
Government safety nets with annual lottery sized benefits for the largest are the equivalent of death by lethal injection for smaller farms.
John Olson 6/20/2013 | 2:01 PM CDT
Hogs gorging at the trough have very limited vision.
John Olson 6/20/2013 | 2:01 PM CDT
Hogs gorging at the trough have very limited vision.
Marcia Taylor 6/20/2013 | 12:37 PM CDT
The House just defeated the Kind amendment, but Kansas State University economist Art Barnaby pointed out that the $50,000 premium subsidy limit was the biggest problem for farmers and would affect many mid-size growers not just Goliaths. Here's his email to me:

The Kind et al. amendment would have made a big cut in taxpayers cost, but the safety net would effectively be gone for commercial agriculture. The Kind amendment included a $50,000 �premium subsidy� cap and once the limit is hit farmers would be paying more than double their current premiums to insure the next acre. A Union County Iowa 80% RP insured corn farmer would hit the limit with 1,200 acres and a Garfield County Oklahoma wheat farmer would hit the limit with about 2,000 acres of cash rented or owned crop land. Farmers would insure their risky crops first and once the �subsidy� was exhausted then they would likely switch to CAT on the remaining crops rather than paying higher premium costs. With this limit it would be time to start the discussion of taking the next step that would close down major parts of USDA. If public policy is not going provide an effective safety net for production agriculture then what is the justification for maintaining USDA employment?

I donâ?™t know if anyone ran a cost savings estimate on the Kind amendment, but it would have been very large. It would have affected a large number of acres farmed by a significant number of farmers and many would have dropped their coverage or change to CAT vs. paying the higher premium costs. This would have affect ag lenders, crop agents, and AIPs in addition to farmers. --Art Barnaby
Pedro Sanchez 6/20/2013 | 12:00 PM CDT
Marcia, if you think that big farmers are going to drop out of the program because their insurance rates go from peanuts to cashews you need to understand that it is all smoke and mirrors. First, there wouldn't be a lender out there that would lend money to a farmer without some serious cash reserves. Seriously, if a 10,000 A farmer walked into the bank and said "loan me $4 million for operating" the first question will be "do you have crop insurance". If the answer is no, he better have a couple of free and clear quarters for collateral, and a huge, huge working capital position (which if he is borrowing a bunch on operating, it is unlikely). The rhetoric doesn't pass the sniff test. Go ask your banker if he would finance you as you are currently if you didn't have crop insurance?
Timothy Gieseke 6/20/2013 | 7:47 AM CDT
They'll invent other products to protect themselves - That is a good thing, not a bad thing - that would bring some fresh air and innovation to the system. When everyone is on a welfare system - you may not like the word, but it is for the welfare of farmers - no innovation is created.
Jarrod Bennett 6/20/2013 | 7:35 AM CDT
Nice article Marcia. I agree, the Kind and Fortenberry Amendments will do more harm than good. Redefining "actively engaged" is a poor way to save dollars. I wholeheartedly agree with your last paragraph.
John Olson 6/19/2013 | 10:29 PM CDT
Amazing how blind many are to the criminals in congress and various farm groups that have a history of designing government schemes that guarantee the most wealthy with income and subsidies of the greatest value. Also amazing how large the severity of penalties for those who steal only a little.
Unknown 6/19/2013 | 8:16 PM CDT
Raise rates a little bit? We are borrowing on the backs of our grand children so Welfare kings can bid the price of land ever higher. Is there no shame?