Senate agriculture leaders have “very significant concerns” over the government’s proposed $6 billion in cuts to the federal crop insurance program, according to a letter signed by 16 Senators and sent to Agriculture Secretary Tom Vilsack.
The proposed cuts, which would be applied over the next 10 years, will “severely constrain” the U.S. agriculture budget, according to the July 2 letter, which was signed by Senate Agriculture Committee chairwoman Blanche Lincoln, as well as Charles Grassley, Pat Roberts and 13 other Senators.
In June, the U.S. Department of Agriculture released a final draft of an agreement detailing terms of new for the government and insurance companies that participate in the federal crop insurance program.
About $4 billion of the proposed $6 billion in cuts would go toward reducing the federal deficit, with the other $2 billion earmarked for USDA risk management and conservation programs, the department said in a June 10 statement.
President Obama “has laid out an aggressive plan for reducing the deficit and we're pleased to take a leadership role in that effort with today's announcement while strengthening key risk management and conservation programs that benefit America's farmers and ranchers,” Vilsack said in the statement.
The proposed cuts would squeeze insurance companies’ profits, reducing the average long-term return to about 14.5 percent from an average of 17 percent over the past two decades, according to USDA figures.
Such cuts would be “crippling” to the industry and threaten jobs in rural communities, Ronnie Holt, chairman of the Crop Insurance Professionals Association, said in Senate testimony during May.
The Senators also objected to a cap on commissions paid to insurance agents, who, the Senators said, are “a crucial component” of the insurance program’s delivery system, according to the letter.
“We can think of no precedent for the government restricting how much companies can compensate a specific class of workers, whether they are direct employees or independent contractors,” the Senators said in the letter.
Vilsack, during a media conference today, said the proposed changes would alleviate imbalances and disincentives in the current insurance program that will allow the government to expand coverage.
The “vast, vast, vast majority” of insurance companies are expected to sign off on the agreement, Vilsack said. “They recognize what we recognized, which is that we needed to have some more balanced arrangements in negotiations with the companies and with the agents,” he said.
“The agreement that we struck was an opportunity for us to reward good producers with potential premium reductions and an opportunity for us to expand the coverage of crop insurance to areas of the country that are currently underserved,” Vilsack said.