by Ken Root
Agricultural and business interests got a jolt last week as the Budget Reconciliation Deal of 2015 cut three billion dollars out of crop insurance. The drama was short lived as leaders promised to reinstate the reduction in payments to crop insurance companies but three billion dollars in spending reductions is going to come from somewhere. It shows that government is willing to subsidize just about anything for a period of time but no one can expect the same dole year after year, especially when leadership changes.
The ascension of Wisconsin U.S. Representative, Paul Ryan, to Speaker of the House should not bring any comfort to those who advocate continued subsidization of crop insurance or any other farm program. As chairman of the budget committee he has published austere budget proposals for the past several years. Even the USDA’s food and nutrition spending is not safe in the evolving fiscal climate.
Government should set programs in motion but it shouldn’t be a perpetual motion machine. Here is how it should work. A new concept emerges that would benefit the people but requires government assistance to gain enough traction to begin moving on its own. Renewable Energy and Crop Insurance are both classic examples. In the early years, the government subsidization keeps private companies in business but the goal of good government should be to wean every industry and individual from dependence on appropriations.
Crop insurance has had a long and tortured history. The mentality of politicians was to use an agricultural disaster as a means of getting re-elected. If a crop disaster happened on a year divisible by two, the disaster payments were often good. If it happened on a year divisible by four, the payments were better but if it happened in a year when neither Congress nor the President were up for re-election, the farmers were left to fend for themselves. Crop insurance transitioned government beneficence over to commercial business. That required oversight and administration by the USDA Risk Management Agency and government subsidization of the crop insurance companies who agreed to play by RMA rules and insure every crop, everywhere. It also required subsidizing growers who put skin in the game by paying premiums but could not justify paying the full premium for their insurance. Currently, government pays about sixty-two cents of every premium dollar that goes to crop insurance companies and they guarantee up to fourteen percent profitability to companies who stay in the program.
Now we come to the current crisis of government spending and entitlement. No industry ever says: “Thanks for the help, we can take it from here!” Everyone returns to the trough and expects to find the same amount designated for them. I do it with Social Security, farmers do it with program payments, companies do it with tax credits or direct incentives and those below the poverty line do it with their Supplemental Nutrition Aid Payment (SNAP) cards that are reloaded each month.
Paul Ryan is still an unknown as a national political leader but he becomes speaker at a time when the extremes have a sizable amount of influence. He was schooled under former speaker, John Boehner, so he will likely be moderate enough to negotiate with both sides. But he has shown, as budget chairman, that he will try to cut spending on everything. Where he winds up, after negotiations, is yet to be determined.
If the government pulled all money out of crop insurance, I believe it would survive. It would not be viable everywhere in the country, nor for all crops, but corn and soybean farmers in the Midwest would still be able to get insurance. Growers of other major crops would also be insurable within defined regions where the production history can be actuarially justified. If it were to be administered through USDA, some insurance companies would remain in the program. The question is whether crop insurance, post subsidization of either farmers or companies, would serve the best interests of the American consumer. If food prices were to go up more than the current level of subsidy, it would not.
In an era when a majority of Americans believe climate change is real and some relate future damage to agriculture, it can be argued that it is not worth the risk to strip away the safety net from farmers.
Now what about the future? In the current political environment, I would give a democrat a seventy percent chance of becoming the next president. The message of Bernie Sanders and Hillary Clinton is “equality” and that goes much farther than equal pay for women or equal rights for all Americans. A democratic administration will justify more subsidization of social and economic programs that meet their desired outcomes. Farm, food and renewable energy may well be winners under a Democrat president and conflicted congress, however a republican majority in both branches could cut farm and food programs to bolster defense. Over seventy percent of farmers voted republican in 2012, so you are already owned by the Republican Party and they don’t have to give you anything more to get your vote.
All of my speculation is based on the “American Political Horizon”. It is four years. We cannot see any farther than that because it is the length of a Presidential term. China may have a five year plan and Japan may have a one hundred year plan for their government but we cannot see or direct the future past the next Presidential election.