President Barack Obama proposed reducing the most expensive part of the farm safety net by cutting the subsidy to farmers for buying crop insurance.
At present, the government pays 62 cents of every $1 of insurance premium. Farmers collected a record $16.2 billion in payments on 2012 crops, chiefly due to drought. They paid $4 billion for the policies and the government added $7 billion.
Obama on Wednesday proposed a reduction of 3 percentage points in the federal subsidy for policies with higher levels of coverage – the most popular policies – and a reduction of 2 points in the subsidy to buy so-called harvest price policies that pay more if commodity prices go up during the year.
Farm income is forecast at record levels, said the White House, so it is time to adjust farm supports. As part of that, it proposed elimination of the $5 billion a year “direct payment” subsidy that is paid regardless of need.
Besides lowering the premium subsidy, Obama said the government should pay less of the administrative cost for the privately run system and insurers should be held to a “reasonable rate of return” on crop insurance, forecast to cost $9 billion a year.
Roughly $1 billion a year would be saved under the administration’s proposal.