WASHINGTON - U.S. taxpayers will pay a record $15 billion to subsidize the privately run crop insurance program this year, double the recent cost due to devastating drought in the Farm Belt.
The program's runaway costs are in focus as Congress looks for ways to cut government spending, making crop insurance a bigger target for reforms.
When lawmakers return to Washington next month, they must tackle both the farm bill, which includes crop insurance, and broad spending cuts required to rein in the U.S. deficit.
"I think the rising cost of crop insurance will bring even more attention to crop insurance than has been paid so far," said Craig Cox of the Environmental Working Group, which says crop insurance is skewed in favor of big farmers and needs reform.
At present, the government pays roughly 62 cents of every $1 in crop insurance premiums and shoulders a large part of the losses in bad years like this one.
The Senate voted in June to reduce the subsidy to big farmers, potentially saving $1.1 billion over a decade. The House of Representatives however, postponed dealing with the thorny issue of cutting farm subsidies until after the Nov. 6 elections.
CROP INSURANCE, THE NEW SAFETY NET
For the 15 companies selling crop insurance, such as Wells Fargo, QBE, ACE, American Financial Group and Endurance, 2012 is the first time in a decade that crop insurance is a money-loser.
Indemnities will be so large, the companies will pay out all the money they collected in premiums this year, $11 billion, plus $2 billion to $3 billion more, say agricultural economists and the catastrophe modeling company AIR Worldwide.
In coming years, as insurers seek to recoup these unprecedented losses, farmers, who kicked in $4 billion of their own money this year for policies, will face higher premium rates. "We don't expect it to be huge rate increases because it will be blended in with other years," said analyst Jason Porter of ratings agency Standard & Poor's in an interview.
Crop insurance has become the biggest U.S. farm support as soaring prices for corn, soybeans and other commodities made the traditional price-support subsidies irrelevant. So-called revenue policies that shield growers from the effects of low prices and poor yields are the most popular version.
Some 85 percent of eligible farm land, 281 million acres, was covered by $116 billion worth of crop insurance this year, setting a high for coverage.
THE MATH, AND PATH, TO A $15 BILLION TAB
As the program grows, so does its cost to taxpayers. Along with premium subsidies, the Agriculture Department pays part of industry overhead and defrays the impact of severe losses on insurers. Experts say USDA could pay three-fourth of this year's underwriting losses, which are indemnities that exceed premiums.