Record Crop Insurance Payout Stirs Subsidy Debate

Farmers will be paid a record $16 billion in crop insurance claims for 2012 because of the widespread drought, a staggering amount that has critics calling for changes to what they say is an inefficient taxpayer subsidy the government cannot afford.

While farmers buy crop insurance from private companies, the federal government subsidizes their premiums and picks up the tab for losses over a certain amount. One analyst estimates the federal tab for 2012 will come to about $11 billion.

It is the second year in a row that U.S. farmers have received record crop insurance payments as flooding and drought in 2011 was followed by an even worse drought last year. The $16 billion in payments also comes as lawmakers working on a new farm bill have been considering a shift from disaster relief to crop insurance as a more predicable way of protecting farmers from natural disasters.

Farmers say they must have some kind of protection or a year like the past two could put them out of business.

Ben Steffen, who has crops and livestock near Humboldt, Neb., said he had insurance to cover three-fourths of his losses last year when drought took about a third of his corn and soybeans and two-fifths of his hay. Farmers can buy insurance that covers from 50 percent to 85 percent of the revenue they would have earned and pay premiums based on their coverage.

“It’s not a money-making proposition,” Steffen said. “It’s a way to keep you from getting buried by a disaster.”

The most recent report from the Federal Crop Insurance Corp., released Monday, put the total payout so far at $15.91 billion, but some claims for 2012 are still pending. Even so, last year’s loss represents at least a 47 percent increase from the $10.8 billion record loss in 2011.