USDA agrees to lessen cut to crop-insurance subsidies

The Obama administration will make less of a cut to subsidies for crop-insurance companies than originally planned.

The decision, according to USDA Risk Management Agency Administrator William Murphy, is part of a new draft of USDA proposed overhaul of its reinsurance agreement with crop-insurance companies.

This is the second draft USDA has developed since it began negotiating with crop-insurance companies last year in an effort to reduce government expenditures as well as to push insurers to service areas of the country that have been traditionally under-insured.

USDA's first draft of its standard reinsurance agreement, or SRA, sought to cut government subsidies by US$8.4 billion over a 10-year period, but that spurred strong opposition from both crop-insurance companies as well as farm groups such as the National Farmers Union and American Soybean Association.

Murphy would not say exactly what USDA now calculates for the overall cut to subsidies, but agreed it was about 20% less than the original proposal. A rough calculation puts that at about US$6.7 billion over 10 years.

Crop-insurance companies will likely demand that the proposed subsidy cuts be whittled down even further and that will be discussed as negotiations continue, Murphy said, but the USDA is adamant that cuts do need to be made.

USDA data show government payments to crop insurers have more than doubled in recent years, jumping from US$1.8 billion in 2006 to US$3.8 billion in 2009 while the total number of policies held by farmers has declined.