American farm subsidies are promoting bad business practices and costing taxpayers plenty, economists calling for budget reform said earlier this week.
The economists, assembled by the self-described libertarian American Enterprise Institute, urged cuts in key U.S. farm spending, including crop insurance, as recommended by Vincent Smith, a Montana State University economist.
Crop insurance, a $6.5-billion-a-year federal program, was costing Americans plenty as private companies collected more to administer the program than farmers were paid and farmers took inadvisable risks knowing federal insurance would come through if their fields failed.
“In the U.S., in the federal crop insurance program, the people who deliver the program, the private insurance companies, receive $1.44 for every $1 that goes to farmers,” Smith said.
“That’s an astonishing statistic.”
Taxpayer subsidized crop insurance premiums are often promoted as necessary to prevent small farmers from being overexposed to agriculture’s high risks, Smith said.
However most subsidies are paid to large farmers and the overall success rate of the farmer is strong compared to other businesses.
One in 200 farms fails annually, while the rate for Main Street businesses is 10 times that, Smith said.
He estimated that $2 billion in savings could be found in federal crop insurance programs.
Another economist, Dan Sumner, of the University of California-Davis, said farm subsidies were unjustifiable when farm prices were as strong at they are now.
Findings to be released
The American Enterprise Institute planned to release its findings Tuesday in a report to Congress titled “American Boondoggle — Fixing the 2012 Farm Bill.”
The group will hold four days of briefings with Republican budget hawk Rep. Paul Ryan, R-Wis.
Ryan, the House Budget Committee chairman, will meet with American Enterprise Institute along with Reps. Ron Kind, D-Wis., and Earl Blumenauer, D-Ore. MSU cconomist Myles Watts will also be at the briefing.
This isn’t he first time the the American Enterprise Institute has called for farm subsidy cuts, but with a tight U.S. budget and the number of U.S. citizens with farming-related jobs down to one in 50, AEI officials said they like their chances of cutting the 2012 Farm Bill.