Friday, November 13, 2015

Crop Insurance Spending Myopia

In the last couple of weeks there's been a lot of focus inside the beltway on crop insurance. First, a 2-year budget deal between Republicans and Democrats planned to cut $3 billion from the crop insurance program. The deal would boost total spending by $80 billion (not including off-budget items) over 2 years. The $3 billion has since been restored to crop insurance in this bill.

More recently another bill called the "Assisting Family Farmers through Insurance Reform (AFFIRM) Act," has been proposed in both the Senate and House. The bill would cut $24.4 billion over 10 years from the crop insurance program by 1) capping RMA's premium share at $40,000, 2) eliminating RMA's share of the premium for all farmers with adjusted gross income over $250,000, 3) retaining the $3 billion cut to insurance providers, 4) reducing the commission paid to insurance salespeople, and 5) eliminating the Harvest Price Option.

The AFFIRM Act is, of course, being sold as a fiscally-conservative measure, but numbers can be deceiving. "Billion" is a big word, but context is important. 

I want to be clear here that I'm not advocating any cuts to or expansions of federal spending, I just want to bring some data to bear on the conversation.
For instance, the U.S. gov't is expected to spend $3.758 trillion in 2015, according to the Office of Management and Budget (OMB) (Table 4.1). The $24.4 billion in cuts over 10 years would average out to a savings of 0.000055% per year; not exactly a significant cut.

The chart below shows the major components of USDA spending as a share of total US gov't spending from 1962 to 2014 and projections from 2015 to 2020 (Table 3.2). Food and Nutrition Assistance, now called SNAP, made up about 2.94% of US outlays in 2014. Farm income stabilization spending (which includes loan deficiency payments, direct payments, and crop insurance spending) totaled 0.571% and research and services comprised 0.125% of the 2014 federal budget. By 2020, farm stabilization spending is projected to fall to its lowest share of the budget in history, while SNAP will return to its pre-great-recession level.
click image to enlarge
Clearly if your primary concern is reigning in federal spending, getting savings from federal farm programs is a bit like getting blood from a stone. I suspect that the grandstanding is more about getting votes or campaign contributions than a commitment to fiscal responsibility. 

A non-ideological move to reduce spending would involve finding ways to cut inefficient spending in one of the agencies in the chart below. Together these agencies made up 82% of US federal outlays in 2014 (Table 4.1). A 3% or 4% cut here or there in any of the four agencies below would actually have a non-trivial effect on federal spending. Again, I'm not saying I support cutting or expanding the federal budget. I'm merely saying that if, as is often claimed, the proposed cuts to crop insurance are about fiscal responsibility, those proposing the cuts are looking in the wrong place.

click image to enlarge

No comments:

Post a Comment