Focus on the Farm Economy– House Ag Committee Holds Fourth Hearing, Crop Insurance Key

A news release Thursday from the House Agriculture Committee stated that, “Today, Rep. Jackie Walorski (IN-2), Chairwoman of the House Agriculture Committee’s Subcommittee on Nutrition, held a hearing to examine the connection between U.S. farm policy and the stability of food prices for consumers. This is the fourth hearing in the Focus on the Farm Economy series [a recap of the previous hearings can be found here, here and here], where each of the six subcommittees are reviewing the state of the farm economy from the perspective of the subcommittee. Members heard from a panel of witnesses who explained the share of the food dollar that goes to each segment of the food supply chain, the role U.S. farm policies play in stabilizing retail food prices, and the potential impact that shifts in food prices have on consumers.”

Subcommittee Chairwoman Walorski indicated that, “One factor that tends to be overlooked is the role of effective farm policies in keeping prices affordable and stable for consumers. While the average American spends 9.8% of their disposable income on food, those with lower incomes, who are already estimated to spend 34% of their disposable income on food, are much more susceptible to swings in food prices. For them, an increase in the price of food means foregoing other needed purchases.”

Dr. Ephraim Leibtag, the Assistant Administrator for USDA’s Economic Research Service, who testified at least week’s hearing, noted that, “In 2014, for example, U.S. households in the middle income quintile spent an average of $5,992 on food, representing 13.4 percent of income, while the lowest income households spent $3,667 on food, representing 34.1 percent of income.

“Along similar lines, consumers in the U.S. and many developed countries spend a relatively small share of their budget on food, usually less than 15 percent, while consumers in many other countries spend 15 to 30 percent on food. Consumers in developing countries with lower average incomes and fewer non-food consumables available may spend 40 to 50 percent of their budget on food. These differences are driven by overall economic conditions, average household income, food market dynamics, and overall food availability in each country.”

And with respect to the sustainability of stable consumer prices when the agricultural economy is sluggish, Purdue University agricultural economist Jason Henderson pointed out that, “In recent years, crop insurance has emerged as a main safety net for U.S. crop producers.”

Dr. Henderson added that, “A recent study has shown that the removal of crop insurance would hurt U.S. food consumers. Based on 2013 data, eliminating crop insurance subsidies would result in lower participation rates and reduced food production that would underpin higher food prices.  It was estimated that U.S. food  consumers would lose $2.5 billion in welfare value if crop insurance subsidies would decline with addition welfare losses to foreign consumers. In addition, U.S. farmers and agricultural producers would lose roughly $8 billion in welfare gains through the loss of subsidies. To be sure, U.S. taxpayers would benefit from the elimination of crop insurance premium subsidies, yet the net general welfare gains would be $932 million. Although, there was recognition that the benefits would vary across farm commodity, consumer food prices, and U.S. states, the analysis was not able to identify the distribution of benefits.”

Meanwhile, a news release last week from Rep. Jim Costa (D., Calif.) stated that, “During the latest Farm Bill negotiations, Federal crop insurance was the topic of much conversation, especially relative to the role that direct payments play in modern agricultural production. Some Members and special interest groups attempted to create a narrative that the program is an inefficient ‘handout‘ to rich farmers and turn popular opinion against our farm communities. Luckily, we successfully beat back that false rhetoric and passed a farm bill. However, despite how untrue it is, the sentiment that began to develop against farm risk reduction programs like crop insurance has festered.

The truth is that crop insurance is a highly successful public-private partnership between the federal government and private insurance companies. It functions as a risk management tool for farmers to mitigate the numerous risks – financial, meteorological or the like – that they take to produce the finest food and fiber in the world. In 2015, crop insurance providers sold policies for more than a 120 different crops valued at $102 billion and covering 298 million acres. Farmers deserve the opportunity to purchase the same security provided by crop insurance in a similar way that homeowners can protect themselves in the wake of a natural disaster.

This entry was posted in Agriculture Law. Bookmark the permalink. Both comments and trackbacks are currently closed.