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Senior Advisor

ISU Prof Bad Mouths Crop Insurance

Bruce Babcock holds the Cargill Chair of Energy Economics and is the director of the Biobased Industry Center.  This is at Iowa State University, Ames, Iowa.  Babcock got his academic education at the University of California, Davis, and Berkely.

 

There is a tweet dated 24 Apr 13 in Roll Call, a capitol hill publication.

 

"Babcock: It's Time to Ask Farmers to Pay More for Crop Insurance"

 

"When somebody else pays for their drinks, most partygoers find they want and need more than a modest amount to drink because at an open bar, the cost of a drink is the time spent waiting in line for service. At a cash bar, lines are shorter because most people find they just don’t need that much to drink when they have to pay for it."

 

When you start an opinion piece implying that farmers are the drunks at the free bar, it does not give the impression that there is any objectivity to follow.

 

"The record $12.7 billion insurance payout to corn and soybean farmers in 2012 was more than twice what they would have been had subsidies not induced farmers to buy Revenue Protection rather than regular revenue insurance."

 

It's hard to tell what crop insurance farmers would have bought if RP had not been available. Crop insurance is one way the government avoids disaster relief payments which would certainly have been voted on had crop insurance not been available.

 

"Just as charging for drinks dramatically reduces alcohol consumption, increasing the farmers’ share of the cost of managing their risk would dramatically reduce their use of insurance. "

 

Bruce has me about on the wagon by now.  There is no question that price is a factor in how much crop insurance I buy.  I wonder if Bruce has addressed the fact that many farmers are buying the most expensive insurance which happens to be the proportionally least subsidized?

 

I guess my pesonal bottom line is I don't care what opinions he has.  What I do care about is that he seems fit to bite the hand that feeds him by giving not facts, not objectivity, but opinions and personal bias.  It seems to me he can put up all the graphs and charts that he wants but it is not his place as a professor in a universtiy I fund to have a public policy opinion.  I don't pay him for opinions.  If he wants to publicly propose policy, let him resign his position and run for office where he will have both the right and the responsibility to formulate policy.

 

http://www.rollcall.com/news/babcock_its_time_to_ask_farmers_to_pay_more_for_crop_insurance-224309-1...

 

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Veteran Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Jim, while I definitely don't like being compared to a drunk at an open bar, I wonder how him opining on policy is different than say, K-States Barnaby proposing the present form of crop insurance, or Ohio's Zulauf (sp?) proposing ACRE.  Not trying to pick a fight or anything, but please explain how those are different?  Or maybe you think Barnaby and Zulauf were out of place too? 

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Senior Advisor

Re: ISU Prof Bad Mouths Crop Insurance

My gripe is that rather than present the facts and conclusions, he advocates a policy.  I do not believe his position makes it appropraite for him to do more than present the facts as fully as persuasively as he cn.  Many people would find the facts persuasive. 

From my view, he has placed himself in a position where he now has a stated position which to me means it is questionable that he can conduct objective research.  After all, he has to defend his opinion now that he has stated it.

The forum he chose to present his views is totally political.  It's not even as if he chose to engage in a discussion with farmers.

The odd thing is from my point of view that I don't really have any great love for crop insurance.  They can delete it completely and it wouldn't bother me at all.  Make it purely commercial if anyone wants crop insurance.  Make it too expensive to grow corn in North Dakota.

The fact is that crop insurance is not and never can be a one trick pony.  It is part and parciel of farm programs, food security, disaster relief, conservation and much more.  To take it out of that milieu as he does is disengnuous at best and simplistic, to boot.

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Senior Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Mostly agreeing with your comments, Jim.  That said . . .

 

Sorry for the source, but from EWG --

 

"The Environmental Working Group (EWG) commissioned Dr. Bruce Babcock to analyze EWG’s proposed safety net for farmers . . ."

 

http://static.ewg.org/reports/2012/farm_bill/babcock_free_crop_insurance.pdf

 

Beyond the fodder for EWG, yes, Babcock's report was making/evaluating a proposal to replace the existing insurance program --

 

"Instead of the current farm insurance program with its costly and complicated set of regulations and subsidies, why not simply give farmers a free yield protection (YP) insurance policy?"

 

Don't see any problem with alternative proposals being put on the table, yet agree those in positions such as Babcock's should take care in their characterization of farmers and the ag industry.  Still, there could be some merit in Babock's proposal, especially if combined with the possibility of continuing higher electives, and the revenue protection (RP) insurance policy, although at some reduced and/or limited level of premium subsidies.  A combination of eliminated direct payments, free YP coverage, and higher electable and RP coverage with a reduced/limited premium subsidy, could result in a substantial savings to the government while still providing a reasonable safety net.

 

Recent publicity is probably due to recent legislative proposals to reduce the premium subsidy levels from 62 to 37 percent --

 

 http://farmfutures.com/story-senate-house-bills-propose-crop-insurance-cutbacks-0-95872

 

The premium cutbacks referenced in the above article are draconian, and harken back to the early days of crop insurance (when nobody bought it), and ad-hoc disaster bills/programs were common and frequent responses.  The true "costs" of the insurance programs must include the "savings" from eliminating those ad-hoc disaster responses.

 

http://www.rma.usda.gov/aboutrma/what/history.html

 

Don't know why crop insurance was essentially an "experiment" from 1938 to 1980.  Blame that on lack of innovation and salesmanship, along with total government control and the politics of ad-hoc disaster programs.  And, as a crop insurance agent in the early 1980's, the MPCI crop insurance products were difficult to sell (except for the ones that really needed to have it) due to the low subsidy levels (30%), lack of choices in the products, no revenue products, maximum 65% coverage level, etc.  Crop insurance didn't really take off until 1994-1995-1996.

 

Babcock aside, why not come up with something that melds all this together into a workable solution that benefits as many stakeholders as possible, while limiting potential competitive distortions (individual premium subsidies subject to reasonable progam payment caps)?  Get rid of direct/counter payments, get rid of ACRE, get rid of SURE, get rid of GRP/GRIP (getting paid when you don't neccessarily have a loss), keep out the ad-hoc disaster programs, keep the public-private partnership with the crop insurance industry, put a "phased-in" cap on individual premium subsidy amounts, and keep crop insurance programs in place (just adjust the premium subsidy levels -- maybe bump up CAT coverage to a 70% YP policy, and reduce the subsidy progressively for higher elected yield and price coverage levels, both YP and RP policies).

 

Personally, I want to do business with my private crop insurance agent and company, as opposed to doing this thru USDA/FSA.  I seriously doubt that the cost savings estimated by putting all this back with FSA would actually materialize.  Plus, I can choose my agent and crop insurance company -- FSA is more of a choice-free environment.  AND, the crop insurance companies have a profit-motivation to help us protect/continue the programs that have worked pretty well over the last several years.

 

 

 

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Veteran Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Jim, this guy sounds like a real dumb a$$ who has nothing to lose. The government can get rid of DCP as we no longer need it. Iowa has largely been unscathed by the past two years of crop losses so I suppose it is appropriate that we hear this from an Iowa professor. Advancements in agriculture as of late have been made more by seed, chemical and equipment companies than land grant universities. Being compared to a drunk at a bar with a nearly unlimited  tab was a poor choice of words for a professor, and shows his lack of real world production ag experience. Crop insurance is a good program, it keeps the government from having to pay disaster payments to farmers while getting acres planted.

 

I remember being in high school ag classes and being told that pursuing a career in production ag was foolish and that I should pursue a career in anything but agriculture. Times have changed. Isn't it amazing that after just a few short good years, America is turning its back on its farmers. Im sorry but just because their is black ink in farming currently doesn't mean it will last. I can't seem to understand why we need to go back to the poor days and LDP's just to make the rest of this country feel better.

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Veteran Advisor

Re: ISU Prof Bad Mouths Crop Insurance

I am wondering who is putting down
The new style crop ins. In my humble
Opinion linking and yeild together was a
Step forward.....the hardest thing anymore
To protect is the price!
I could maybe see a slight reduction in
sub rate...but we already lost payments
(But some is corn farmers consider $35,000
A drop in the bucket).

I remember years back when everything
went flop...these programs we have really
Help us...much better than we had....

Crop insurance saved many farmers and
Banks and many rural communities.

What's the deal with corn people...first
Phips on u s farm report.....then a
Prof at Iowa state. ??????

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Honored Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Americans will do just about anything for the underdog. Once farmers stopped serving that role, they really lost the pity factor, and media attention to land prices, crop prices, and the rest of the rural economic turnaround, your days as darlings were numbered.

Some of us are old enough to remember when this happened in the seventies. We all know what happened next, how farming the programs was about all there was for several decades, unless you diversified and fed dirt-cheap feedstuffs to livestock...and there were serious, sometimes fatally so, gaps in that survival strategy (1998-99).

I find myself having moments of logical conflict these days. It is about six times cheaper per ton to export seed and teach Africans to raise a crop, rather than export aid grown here. This is the noise coming out of Washington right now, which is upsetting some commodity groups. Meanwhile, we court the Chinese to buy every excess soybean...and, they are busy buying potentiall arable land in Africa.

Why are we running up budgets paying for junkets to beg them to buy crops to boost exports, and at the same time building their independence of us in Africa?

Like I said, none of what I see makes any sense to me....



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Honored Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Remember this, guys...the author of the drunk at the bar analogy wasn't writing this for YOUR consumption as farmers. He was making a point to the non- ag general,population. He had to select an analogy that struck a chord in THEIR experience not YOURS.

City people have way more open bar v cash bar events in their background than most of us do. His points had to be explained in terms they would understand, and it wasn't a bad comparison. People tend to consume more of things that cost them less, than they do of expensive things. This may, in fact, be why Americans as a population overeat.

There is a new TV series called " Rectify" on Sundance. Because it harks from the same folks who made "Breaking Bad", we decided to give two hours to the premiere episode this week. Essentially, it is about a guy who has been convicted of a rape/ murder at age 18, mostly because he confessed to it. DNA evidence frees him 19 years later.

It is a remarkable time warp social statement in the making. One comment he makes, when eating in a restaurant with his stepbrother, is that " people seem to eat more than I recall." The stepbrother replies that yes, it used to be that there was only a Sunday buffet, but now it is everyday.

That small bit of dialogue spoke volumes about our culture, our habits, and our expectations. We have come to think that in America, everything is unlimited, for one price. Every element is all-you-can-eat, even if the price to the consumer is zero, or at least highly subsidized.

The truth is, our country cannot afford this illusion anymore. We are carrying a huge number of people on aid, which they are rushed to accept, so as not to be counted as legally unemployed anymore. If not for this charade, estimates of 17% true unemployment would be better known, and the actual depression our economy is suffering would have been diagnosed.

Of course, you will not hear this part of the story out of a liberal's mouth. Before someone suggests it, I am not a " conservative", just a slave to logic.
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Honored Advisor

Re: ISU Prof Bad Mouths Crop Insurance

Expect more of the same. About all you can do us complain to your elected legislators that tax-funded faculty are making over-politicized comments. We are so few now, we are practically disenfranchised.
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Veteran Advisor

Re: ISU Prof Bad Mouths Crop Insurance

You both, Jim and Kay, make excellent points, but  Jim, I believe that free speech doesn't stop just because you are a public employee. If that was the case, none of our elected representatives would be entilted to open their mouths, either. A lot of public money is spent on farm programs, and trying to get the best bang for the buck is a worthy goal. I cannot really see the argument against speaking out for alternative funding ideas. The analogy of free drinks vs. cash bar is a pretty good one, and it seems to resonate. If someone has a drinking problem, maybe it is not a sensitive comparison, though.

 

Kay, liberals in America don't want to acknowledge the 17% true rate of unemployment and would prefer to squander our future by kicking the can down the road and by depleting both the social security funding through open disability entitlements, and our ability to borrow and finance the challenges of tomorrow. Its hard for the conservative mentality to compete against free stuff in the marketplace that is the progressive population of voters.

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