Planet Money - Agriculture
Thu August 23, 2012
Why do taxpayers subsidize farmers' insurance?
Originally published on Fri August 24, 2012 9:16 am
This summer's drought has hit more than half the states in the country. Crops are suffering, but farmers might not be. Most farmers have crop insurance.
U.S. taxpayers spend about $7 billion a year on crop insurance. It's our largest farm subsidy.
And this subsidy goes in part to farmers — who will tell you themselves they aren't so sure about the whole idea. "I have an aversion to it," says Jim Traub, a corn and bean farmer in Fairbury, Illinois. "But you're not going to turn it down."
Traub is attending a workshop at the Fairbury library on how to collect on his government-subsidized crop insurance. He brought the whole male half of his family — three generations of Traub farmers — to today's workshop. They're all named John or Jim.
All the Traubs will file losses this year. But all of Traubs also feel uncomfortable that taxpayers will help cover those losses.
"Everyone in here is a millionaire," John Traub says. In all, farmers assembled at the Fairbury library have "hundreds of millions dollars in equity in farmland."
John Traub says he and his family can survive a bad year or two. He is certainly wealthier than younger farmers. But on average, farmers make more than the typical American.
Which is one reason why economists like University of California Davis professor Daniel Sumner don't like the government giving farmers subsidies.
Sumner says ski resorts suffered last winter when there wasn't a lot of snow. The government doesn't say, "Sorry you didn't have a lot of skiers. Here's a check."
But farmers say farming is different. Donald Bielfeldt, a crop insurance agent in Anchor Illinois, says that the government needs to pay to insure farmers.
Somebody has to raise the cattle, hogs, chicken. I mean, that's what you live on.... We have to protect the farmer, so that they don't all go broke. And that's what crop insurance is all about.
But even without insurance, Traub says, most farmers would not go broke from this one bad season.
The insurance certainly helps, though. Most eligible farmers are covered. And a small number even stand to make more this year from their crop insurance than they would actually farming.
Congress is working on a new Farm Bill. One of the biggest changes being proposed is an expansion of crop insurance.
DAVID GREENE, HOST:
A long summer drought continues to kill acres of corn and beans across the Midwest. The crops are suffering, but many of the farmers are better off because they have crop insurance. The insurance is heavily subsidized by the government.
And our Planet Money team has been wondering if the subsidy makes sense. Here's NPR's Chana Joffe-Walt.
CHANA JOFFE-WALT, BYLINE: If you have never found yourself wondering about crop insurance, I get that. Most of us don't buy it, don't use it, don't know what it is. But allow me to make this pitch for your attention. Most of us do pay for it. American taxpayers spend about $7 billion a year on crop insurance. It's our largest farm subsidy. And it's a subsidy that goes in part to farmers who themselves will tell you they aren't so sure about the whole idea.
JIM TRAUB: Oh, I have an aversion to it. But you're not going to turn it down.
JOFFE-WALT: This is Jim Traub. He farms corn and beans in Fairbury, Illinois. And while he is telling me his concerns about government involvement in crop insurance, he is also attending a workshop on how to collect on his government subsidized crop insurance. Like he said, you're not going to turn it down. It's in the Fairbury Public Library in the basement, and Jim brought the whole male half of his family to today's workshop, three generations of Traub farmers, all named Jim or John.
JOHN TRAUB: John. We're all - John, John, and Jim.
TRAUB: There's three Johns and...
JOFFE-WALT: And your Jim.
TRAUB: I'm Jim, yeah.
JOFFE-WALT: What's your last name, Jim?
TRAUB: Traub, T-R-A-U-B, same thing.
JOFFE-WALT: Traub - oh, you're all Traubs?
TRAUB: Yeah. His grandpa and my grandpa, same guy.
JOFFE-WALT: All the Traubs will file losses on their crops this year, but all the Traubs also feel uncomfortable that taxpayers will help cover those losses.
TRAUB: We needed insurance more 40 years ago than we do today.
TRAUB: Because we are a healthy farm economy by any measure right now. Financially we're sound.
JOFFE-WALT: Grandpa John Traub leans in at this point. He's more blunt.
TRAUB: Everyone in here is a millionaire.
JOFFE-WALT: Including you?
TRAUB: Yeah. Yeah.
JOFFE-WALT: How long does it take to become a millionaire? Like is your grandson one?
TRAUB: Oh, I'd say give him another two, three years. There's hundreds and hundreds of millions dollars in this room in equity and farmland.
JOFFE-WALT: Equity in farmland is not the same thing as having a million dollars in the bank to spend. What Grandpa Traub is saying is that we have land, equipment, and it's worth a lot. We can survive a bad year or two. Grandpa Traub is certainly wealthier than younger farmers in this room, but on average farmers make more than the typical American, which is one reason why economists don't like the government giving farmers subsidies. Here's Daniel Sumner at the University of California, Davis.
DANIEL SUMNER: We're taking a bunch of money from taxpayers and giving it to a relatively wealthy group of people.
JOFFE-WALT: Sumner says ski resorts suffered last winter when there wasn't a lot of snow. The government didn't say, sorry, you didn't have a lot of skiers, here's a check. Okay. But maybe farming is different. Maybe farming stands out from all other businesses.
DONALD BIELFELDT: The government has always taken care of the farmer since World War II.
JOFFE-WALT: This is Donald Bielfeldt. He's a crop insurance agent in Anchor, Illinois, and he says farmers need government help.
BIELFELDT: That's our livelihood.
JOFFE-WALT: That's whose livelihood?
BIELFELDT: Ours, yours. When you go to the grocery store - do you go to the grocery store?
JOFFE-WALT: I do go to the grocery store.
BIELFELDT: Okay. Well, that stuff doesn't automatically jump on the shelf. Somebody has to raise the cattle, hogs, chicken. I mean that's what you live on.
JOFFE-WALT: And they wouldn't do that if I didn't pay for the crop insurance?
BIELFELDT: No. No. No. I mean we have to protect the farmer, that they don't all go broke, and that's what crop insurance is all about.
JOFFE-WALT: But even without crop insurance, as Grandpa Traub pointed out, most farmers would not go broke from one bad season. But sure, the insurance helps. It helps a lot. This is a terrible season, and most eligible farmers are now covered. A small number even stand to make more from their crop insurance this year than they would actually farming. Congress is working on a new Farm Bill, and one of the biggest changes being proposed right now is an expansion of crop insurance. Chana Joffe-Walt, NPR News. Transcript provided by NPR, Copyright National Public Radio.
Economy - Agriculture