U.S. farm bill 'windfall' option could cost billions extra -study

Reuters

* Could boost crop insurance cost by 40 percent -report

* Supplemental Coverage Option covers 90 pct of crop revenue

* Insurance group says report is one-sided and slanted

By Charles Abbott

WASHINGTON, Oct 10 (Reuters) - An insurance provision in theU.S. farm bills proposed by the House and Senate could havecorn, soybean, and wheat farmers making more money in a badyear, such as during a drought, than in a good year, anenvironmental group said on Thursday

In a 20-page report, the Environmental Working Groupcriticized the proposed Supplemental Coverage Option (SCO),which is in both the House and Senate versions of the Farm Bill,claiming it would have increased crop insurance payments duringlast year's drought by $6.8 billion on top of the record $17billion that was paid out.

A corn farmer in central Illinois during that drought wouldhave had crop revenue of about $1,300 a acre, or $200 an acremore than he had expected at planting time, said agriculturaleconomist Bruce Babcock of Iowa State University.

SCO payments would be "windfall gains" on top of traditionalpayments and revenue from crop sales, making it unnecessary,said Babcock, a crop insurance expert who wrote the report forthe "green" group.

"The best year they ever had (financially) would have beentheir worst year in terms of drought," said Babcock.

The Environmental Working Group works to gain more fundingfor conservation and small-farmer programs.

There would be a "substantial" SCO payout this year due tolower market prices and yield damage in the western Corn Beltand U.S. Plains, he said, although the corn crop is forecast tobe record-large and soybeans the fourth-largest ever.

EWG said the SCO could cost more than the $5 billion-a-yeardirect-payment subsidy that it would replace. Farm-statelawmakers said they would end the direct payment as part of farmsubsidy reform.

FARM COUNTRY SUPPORTS CROP INSURANCE

Farm groups gave priority to strengthening crop insurance in the pending farm bill. Farmers pay premiums every year butcollect only in bad times, say defenders of thetaxpayer-subsidized system.

The House and Senate still must agree on a final compromiseversion of the Farm Bill.

"Yet another one-sided and slanted 'report,'" said the tradegroup National Crop Insurance Services about the EWG report.

It said the report used "the extreme and unrepresentative"2012 drought along with unrealistic commodity prices to arriveat an inflated price tag, rather than look at likely performanceover good and bad years.

Crop insurance is the largest part of the farm safety net.Crop insurance spending was forecast to increase by up to 10percent over the coming decade, to around $10 billion a year, infarm bills passed by the Senate and House of Representatives.

The SCO would be a county-based revenue policy that wouldcover the gap between a farm's individual insurance coverage and90 percent of projected crop revenue. The government would pay65 percent of the premium and there would be no limit onpayments.

The Senate would require growers to practice conservation toqualify for crop insurance subsidies and have growers with morethan $750,000 a year in adjusted gross income pay a larger shareof the premium. Neither proposal is in the House bill.

SCO would trigger payments more often than other so-calledrevenue programs proposed in the new farm bill, said analystsKeith Collins and Harun Bulut in the economics journal Choices.

Iowa State's Babcock said a simple reform would improve SCOdramatically. Revenue guarantees should be based on pricesexpected at planting time rather than harvest, he said. Pricesrise sharply when crops are bad, creating an offset for pooryields.

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