The Prairie Star, MT
12-20-06
Easy as hitting a bull in the backside
By ALAN GUEBERT, Columnist
In late July, this space highlighted recent investigative stories by reporters at the
Washington Post. The stories, as explained then, centered on the “2002 drought
bill (that) sent farm program billions to non-farming farmers, non-ranching
ranchers and non-drought-suffering ‘victims.’”
In the five months since, the same Post reporters, Gilbert M. Gaul, Dan Morgan
and Sarah Cohen, have stitched together more stories to unroll an even larger
carpet of farm program windfall, waste and witchcraft.
(Readers may recognize Morgan’s byline. His 1979 book, Merchants of Grain,
was the classic study of multinational giants Cargill, Louis Dreyfus, Continental,
Bunge and Andre’ and their secretive, global grain cartel.)
Finding waste and corruption in American farm programs, though, is like hitting a
bull in the butt with a two-by-four: given its size, it’s hard to miss. Uncle Sam,
after all, sends farmers and ranchers truckloads of taxpayer money - $40.8 billion
in 2005 and 2006 alone.
What the Post series, titled “Harvesting Cash,” did exceptionally well, however,
was tie names, dates and amounts to the gritty, Capitol Hill game that delivered
the windfalls and waste.
For example, in an Oct. 16, Page One piece headlined “Crop Insurers Piling Up
Record Profits,” the reporting trio lays out the political and financial recipe that
cooked up federal crop insurance, one of agriculture’s least competitive, most
profitable enterprises.
It’s another chapter in Washington’s oldest story: In 2002, “a small upstart
insurance company,” named Crop 1, approached USDA’s crop insurance arm,
the Risk Management Agency, with a plan to offer farmers a price discount of up
to 10 percent; a reasonable move for a firm looking to carve out a niche in the
billion-dollar market.
But, “An eruption ensued,” continues the story. “The other companies quickly
turned to Congress to quash the idea... (and) with the help of several powerful
members of Congress, the program was eventually derailed.”
In doing so, the “16 companies that work” with RMA, especially the “three firms Rain and Hail LLC; Great American Insurance Co.; and Rural Community
Insurance Co. - which together account for the bulk of the business,” preserved
their incredibly profitable way of business while protecting farmers’ way of life.
“Last year, the companies made $927 million in profit, a record. They received an
additional $829 million from the government in administrative fees to help run the
program. On top of that, taxpayers kicked in $2.3 billion to subsidize premium
payments for farmers.
“All that to pay farmers $752 million for losses from bad weather.”
Pretty good government-protected oligopoly, eh? It gets better, reports the Post.
Since the program’s 1981 creation, and through several Congressionally-enacted
“reforms” to attract more farmer participation by offering wider, more subsidized
coverage, “(T)he insurance companies, records show, ...have suffered $139
million in losses in a few bad years while collecting more than $4 billion in profit
during the good ones.”
Over the same period, according to Post’s study of the program, “subsidies to
farmers for their premiums have totaled nearly $19 billion.”
The bottom line to this very sweet deal, according to one Post source, Iowa
State University ag economist Bruce Babcock, is “We probably would be
better off just giving the farmers the money directly. That way we could save all
the fees going to the private insurers.”
Christmas trees like crop insurance just don’t suddenly appear. Someone plants
the seeds, another nourishes the seedling and a third provides protection until it
reaches its full, flush beauty.
Farmers, of course, planted the seed; they (and their lenders) need protection
from weather disasters even though Federal Crop, by design, covers less - often
far less - than actual losses.
Specialized insurance companies nourished the seed; they went to Congress
with their market-enhancing ideas to boost participation and fatten profits.
And Congress, Repubs and Dems alike, delivered everything asked of it;
including an impenetrable wall to competition.
As such, farmers get a great deal; a tiny handful of insurance companies get an
incredibly great deal; and politicians get re-elected. Taxpayers, as usual,
however, get it in the backside.
Just like the previously mentioned bull.