WASHINGTON (July 6, 2012) — Much of the $35 billion in federal savings proposed in draft Farm Bill legislation unveiled this week by the House Agriculture Committee could prove elusive, as the measure creates several new taxpayer-financed “shallow loss” insurance programs that would ring up huge costs if current record-high commodity prices prove unsustainable, according to the R Street Institute.

While House Agriculture Committee Chairman Frank Lucas, R-Okla., and Ranking Member Collin Peterson, D-Minn., go farther than their counterparts in the Senate — who last month passed a similar Farm Bill with only $23 billion in expected savings, falling short of the White House’s target for cuts – nearly all of the House bill’s additional cuts come from the Supplemental Nutrition Assistance Program, better known as food stamps.

Meanwhile, in many of the Farm Bill’s most market-distorting commodity and insurance programs, the House proposal is even worse than the Senate’s from a taxpayer perspective.

Like the Senate bill, the House would eliminate the wasteful program of direct payments to farmers, which the Congressional Budget Office has estimated will save roughly $50 billion over the next decade. But it redirects most of those savings back into a new “shallow loss” revenue insurance program, similar to the Senate bill’s Agricultural Risk Coverage, that the House bill calls Revenue Loss Coverage.  The RLC program would charge no premiums to farmers, who would be entitled to payments if county-wide revenues drop by more than 15 percent.

“In estimating the cost of these new shallow loss insurance proposals, CBO has assumed that recent record commodity prices are sustainable,” said R Street Public Affairs Director R.J. Lehmann. “If prices fall, the cost of the programs could easily erase all of the supposed savings in both the House and Senate Farm Bill proposals. These new programs are taxpayer-funded boondoggles that encourage cultivation of lands most prone to floods and erosion, and whose benefits will flow disproportionately to the largest and wealthiest agricultural producers.”

While the Senate bill also cut the USDA’s counter-cyclical payment programs, in order to placate rice and peanut interests, the House bill creates a new subsidized counter-cyclical program, similar to RLC, that it calls “Price Loss Coverage.” The bill also maintains the existing price-support quota system for sugar imports and transitions the existing price support program for cotton, which has been challenged by the World Trade Organization, into another new shallow loss insurance program, separate from RLC.

Disappointingly, the House bill makes no cuts at all to the existing $9 billion-a-year federal crop insurance program, under which taxpayers pick up the tab for more than 60 percent of farmers’ premiums while paying private companies billions to sell and administer the policies. Instead, the bill actually expands the program by authorizing a new Supplemental Coverage Option policy – similar to the RLC shallow loss program – and by reducing crop insurance premiums by 10 percent for new farmers and ranchers.

Economists’ estimates show that simply returning crop insurance subsidies to where they were prior to 2000’s Agricultural Risk Protection Act would yield $50 billion in savings.

“For all of their tea party bluster, the House Republicans have proposed a wasteful, big government program that disrupts the private market, spends billions of taxpayer dollars that we don’t have and harms the environment,” R Street President Eli Lehrer said. “If Republicans are serious about cutting government, they need to start from scratch.”

R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. R Street’s co-founders previously were the staff of the Heartland Institute’s Center on Finance, Insurance and Real Estate. Its website is www.rstreet.org.

Featured Publications