Corn and soybean farmers are pushing for — and Congress is moving to create — a whole new subsidy that could maintain farm incomes at a nearly four-decade high should prices fall or crops be destroyed by weather.
The new subsidy would protect farmers when their revenue drops. Critics say it is an unprecedented program that could pay billions of dollars to farmers now enjoying record-high crop prices.
The subsidy would take the form of free insurance that would cover farmers' "shallow crop losses" before their paid insurance kicks in. It would replace several other subsidy programs, including direct payments preferred by Southern rice and cotton farmers. Growers get the direct payments regardless of crop yields or prices. They don't even have to farm.
The "shallow loss" insurance programs could begin paying out once a farmer's revenue falls by as little as 5% or 10%. Federally subsidized crop insurance, for which farmers pay premiums, would kick in with deeper losses.
The income insurance plan has a diverse group of opponents — environmental groups that have long argued against farm subsidies, conservatives who say the plan won't save the government much and even one of the nation's largest farm groups. The American Farm Bureau Federation says the beefed-up insurance could encourage farmers to make riskier decisions and drive up the price of land.
The chairs of the House and Senate Agriculture Committees are looking at folding the new subsidy into a farm bill proposal they are quietly crafting as part of their charge by the deficit-cutting congressional supercommittee to cut farm spending.
Chairwoman Debbie Stabenow, D-Mich. and House Agriculture Chairman Frank Lucas, R-Okla. have said they will shave $23 billion from farm and food aid programs over the next decade. The new revenue insurance program would be considered part of their effort to achieve that goal.
The committee leaders have not yet released the proposal, but lawmakers have signaled that the revenue insurance will be part of the deal. It is unclear just how it would be crafted and what effort will be made to control its costs. Critics fear a worst-case scenario that would use current, record-high crop prices as a baseline for average revenue — that way, farmers who suffer minor revenue losses in future years could get major payouts, which could eat up some of the $23 billion in promised savings.
Federally subsidized crop-insurance programs are now costing taxpayers up to $7 billion to $8 billion annually despite the biggest farm profits in nearly four decades. The Agriculture Department predicts net farm income by the end of this year will total $103.6 billion, a rise of 31% from 2010. The department says this is the highest value since 1974, adjusted for inflation.
Replacing the direct payments seems inevitable. Critics have singled them out and even farm groups now say they are politically indefensible. But critics of the new income insurance subsidy say it could create new problems for taxpayers and farmers alike.
"The only rationale for a new federal revenue guarantee program, on top of existing revenue insurance programs, is that it seems politically easier to defend than direct payments," said Bruce Babcock, an agricultural economist at Iowa State University.
Babcock released a report last week calling revenue insurance a "boondoggle." The report was commissioned by the Environmental Working Group, an advocacy group that has long opposed federal farm subsidies.
The shallow-loss plan has been pushed mostly by corn and soybean growers who use crop insurance more frequently. Rice and cotton growers have generally favored direct payments because their crops are more expensive to grow.
Jon Doggett of the National Corn Growers Association says the criticism is unfair, and that the new program would be designed to cost less than current subsidies. He says corn growers and other farmers have been trying for years to find a better way to manage the risks they are taking and that crop insurance hasn't always been adequate.
"Large crops like corn, soybeans and wheat are so integral to so many other parts of the food chain," Doggett says. "You want to provide some sort of stability in that food chain."
Agriculture committee leaders argue that the revenue insurance plan makes sense because farmers would receive payments when prices fall or their crops are destroyed, unlike direct payments which are paid in good times and bad.
"We've got to move away from paying people when they don't need it," said Minnesota Rep. Collin Peterson, the top Democrat on the House Agriculture Committee. Peterson and Kansas Sen. Pat Roberts, the top Republican on the Senate Agriculture Committee, have participated in negotiations with Stabenow and Lucas.
Peterson said negotiators are still working on some of the problems raised by critics, including the potential that the revenue insurance could overpay farmers in good times. He said the lawmakers may end up proposing different programs for different crops.
Agricultural economist Babcock and the Farm Bureau both say insurance should only kick in when a farmer has major losses.
Shallow losses "do not typically jeopardize the survival of a farm operation," Farm Bureau President Bob Stallman said in a letter to the agriculture committees.
The agriculture committee leaders are writing a full farm bill to submit to supercommittee, hoping to push the legislation through that process to avoid even bigger cuts when the current farm law expires at the end of next year. The supercommittee as a Nov. 23 deadline and Congress, by law, has to vote on it before Christmas.
Critics complain the multibillion-dollar is being written behind closed doors. Even many members of the two agriculture committees have been shut out of the process.
Wisconsin Rep. Ron Kind, a Democrat who unsuccessfully led efforts to reduce farm subsidies during debate over the last farm bill four years ago, said he is concerned that those who want to see subsidies scaled back will be shut out of the process completely. He wrote a bipartisan letter with 26 other members last week urging a more open process.
"The concern is that the committee tries to use this to rewrite a farm bill with new mandatory spending when the goal is cost savings," Kind said. "These are complicated programs and they should be properly vetted. There are huge consequences."