ISU Economist, Environmental Group Support Crop Insurance Cuts

Dec 3, 2015

As Congress debates restoring $3 billion in recent cuts to the crop insurance program as part of a transportation bill, at least one environmental group says the cuts should stay.


The reductions are controversial because farmers depend on taxpayer-subsidized crop insurance in lean times and the current program grew out of painstaking farm bill negotiations. But the Environmental Working Group, a longtime critic of farm subsidies, says the cuts wouldn't hurt farmers. Companies, on the other hand, might have to tighten their belts.


"You would end up with a more efficient delivery system," said Iowa State University economist Bruce Babcock, who did the math for EWG. "You would end up with about the same companies and the same number of agents, maybe a bit of consolidation."


Babcock says he used figures from the industry itself to look at how their increasing costs over the period of 2001 to 2013 compared to other factors such as inflation. He found while productivity in other areas of insurance has grown, and with the number of crop insurance policies about the same throughout the period, crop insurance companies reported an 8 percent annual increase in their costs.


"There's room to cut," Babcock said, "there's bound to be excess cost. If your costs are growing 8 percent a year, it's not exactly a lean, mean delivery system."


Babcock says the $3 billion cut would force the industry to be more efficient.


But crop insurance supporters, including Iowa Republican Sen. Chuck Grassley and other farm-state senators, argue that the program was finalized in the 2014 farm bill, which should not be re-opened.


Some of those lawmakers now are counting on promises the Congressional leadership issued at the time of the budget deal to restore the crop insurance money. A federal transportation bill scheduled for a vote still this week would do just that.