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U.S. crop insurance a post-election target

The federal government will likely shell out $15 billion or more for its share of crop losses caused by drought

Reuters – Federally subsidized crop insurance will be a big target for U.S. lawmakers looking to cut the budget deficit in the lame-duck session of Congress that opened recently after a status quo general election.

But lawmakers aren’t expected to break their deadlock over enacting a five-year, $500-billion Farm Bill covering a wide range of agricultural policy from food stamps to crop subsidies and soil conservation.

The worst drought to hit the Midwest Farm Belt in half a century should double the cost of crop insurance this year, and the nagging drought threatens 2013 crops as well.

Another key question for farm policy watchers after the re-election of President Barack Obama is whether Agriculture Secretary Tom Vilsack will serve a second term. Since the 1960s, only one USDA secretary has served two terms.

Ethanol likely benefited from Obama’s victory, said analyst Mark McMinimy of Guggenheim Securities, noting that Obama and Vilsack are biofuels backers.

The Environmental Protection Agency may decide this month whether to relax the requirement to use ethanol in gasoline. Livestock producers say they are being ruined by high grain prices as more U.S. crops are diverted to fuel.

With Democrats still in narrow control of the Senate and Republicans keeping their majority in the House, analysts said a short-term extension of the 2008 farm law, probably into spring, is the likely outcome.

Odds against five-year Farm Bill

“Odds are against a five-year Farm Bill in the lame-duck (session) unless it’s part of a budget agreement,” and that’s unlikely, said Pat Westhoff of the think-tank Food and Agricultural Policy Research.

Crop insurance already is the biggest part of the farm safety net, costing the government around $7 billion a year. The cost is expected to jump to $15 billion or more this year because the government will shoulder most of the underwriting losses for the 16 insurance companies in the field.

Senators voted overwhelmingly in June to reduce the federal insurance subsidy for the wealthiest farmers. This could save $1.1 billion over a decade. The House of Representatives has not yet decided on this issue.

Costs could be cut further through an across-the-board reduction in the premium subsidy — currently the government pays 62 cents of each $1 in premiums — or by requiring insurers to accept a larger share of losses.

Crop insurance under attack

The major U.S. farm groups made a strong crop insurance program their top priority for the bill, even if it meant cutting other agricultural supports.

“Why start attacking the one tool we’ve been guiding people toward for 25 years?” asked Dale Moore, a lobbyist for the six-million-member American Farm Bureau Federation.

The House splintered over how deeply to cut crop subsidies, many of which go to well-off farmers, and food stamps that are a lifeline for millions of low-income Americans.

This summer, House Republican leaders refused to call a vote on the bill — which would slash $16 billion from the food stamp budget over 10 years — saying there was not a majority for it.

That’s a cut four times larger than what’s proposed by in Senate’s version of the Farm Bill. And many Washington watchers expect that version will be the model for a new Farm Bill. The Senate bill would end traditional crop subsidies, mainstays of U.S. farm law for eight decades, and instead compensate farmers when revenue from a crop was 11 to 21 per cent below normal. Crop insurance would cover deeper losses. The leading House plan would also boost crop support prices by up to 40 per cent.

Vilsack to stay or go?

Farmers, in general, are not Obama fans. The president’s share of the rural vote dropped to 41 per cent on Nov. 6 from 46 per cent in the 2008 election, according to the Center for Rural Strategies.

But Vilsack, Obama’s agriculture secretary and a former Iowa governor, has been a mostly popular USDA chief with a strong focus on overseeing programs as diverse as nutrition, farm exports and the national forest system.

Vilsack is widely expected to continue at USDA, at least for another year or two.

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