WASHINGTON — The worst drought in 50 years led to record payouts from a taxpayer-subsidized insurance program created to protect farms from weather-related disasters. But the high costs were mostly a result of policies that guarantee farmers a portion of their projected revenue, rather than coverage that pays them for their damaged crops, according to a study released Wednesday.
The study comes as lawmakers are preparing to work on a new farm bill — a spending bill passed every five years that sets the nation’s food and farm policy. The last farm bill was passed in 2008.
The study was financed by the Environmental Working Group, a Washington research group, and conducted by Bruce Babcock, an agriculture economist at Iowa State University.
Under the federal crop insurance program, farmers can buy insurance that covers poor yields, declines in revenue or both. Babcock said most farmers bought a combination of the two policies.
The result, he said, is that crop insurance has become more of a farm income support program than a system that protects farmers in times of disasters like the 2012 drought.
Taxpayers pay about 62 percent of the insurance premiums. The policies are sold by 15 private insurance companies, which receive about $1.3 billion annually in total from the government. The government also backs the companies against losses.
These subsidies drive up the cost of the program, Babcock said, with farmers buying higher levels of coverage than they otherwise would. He estimated that without the subsidies, crop insurance payouts during the 2012 drought for the two largest crops, corn and soybeans, would have been just more than $6 billion, about half of the $12 billion that the government actually paid.
As a result, the study found, many farmers made more money from insurance payouts during the drought than they would have from healthy crops.