Thursday, July 26, 2012
Crop Insurance Leaves Taxpayers With Drought Bill
Crop insurance — not disaster aid — will cover the losses of most Illinois grain farmers hurt by the summer’s severe drought. Even so, taxpayers will be on the hook for millions of dollars – billions nationwide - because of a flawed program that has quietly mutated since 2000, one environmental watchdog group says.
Taxpayers cover about two-thirds of the premiums for crop insurance policies. The cost to taxpayers has grown from $1.5 billion a year in 2002 to $7.4 billion last year, said Craig Cox, senior vice president of the Environmental Working Group, citing USDA figures. Plus, taxpayers foot another $1.3 billion a year for overhead costs for the insurance companies, such as administering the policies, adjusting the policies, examining the crop losses and more, he complained
The latest crop-insurance policies, which are the most popular in the Corn Belt, have something called “revenue protection,” insuring a crop based on dollars per acre instead of bushels per acre. The insurers may have no idea how much a farmer gets for his crop at the end of the season, but they pay out an amount based on the insurer-established harvest price and the actual yield. If it’s less than the per-acre guarantee established when the policy was taken out, the company pays the difference.
In addition, these revenue-protection policies allow the guaranteed payment to be adjusted according to grain-price fluctuations. If the price of corn or soybeans, for example, rises during the growing season, the policies calculate the guarantee based on the highest price.
“If that farmer loses his entire crop, he’s going to get more money from the insurance policy than he expected to get if he saw no loss in yield at all and sold his entire crop under the insured price when he bought that insurance policy,” said Cox.
During the severe drought of 1988, most farmers did not have crop insurance and relied heavily on government disaster aid. John Hawkins, spokesman for the Illinois Farm Bureau, said this summer’s drought is the first real test of the crop insurance program in Illinois.
The cost to the government for the crop insurance program in Illinois between 1995 and 2011 was more than $1 billion, according to figures from the Environmental Working Group based on USDA data.
You can read Jayette's full report at: http://watchdog.org/44966/il-drought-could-lead-to-record-crop-insurance-payments/
In the pic: Corn's really been clobbered with drought downstate.