Agriculture Secretary Tom Vilsack said US$4 billion of the savings would go toward deficit reduction, while US$2 billion would be used to expand farm risk management programmes and the popular Conservation Reserve Programme, which pays landowners to take environmentally sensitive land out of production and convert it into wildlife habitat.

 

"There is a growing consensus in the country and certainly in rural areas that we need to be paying attention to the deficit, and this is our effort at agriculture and USDA to do our part in deficit reduction," Vilsack said.

 

The programme as currently structured would cost US$29.5 billion over the coming 10 years. The changes would cut that to US$23.5 billion. The new plan achieves its savings in large part by eliminating the kind of windfall government payments that were triggered by sharp commodity price spikes in recent years. It will do that by capping the administrative and overhead expenses crop insurance companies can collect. Agents can expect average commissions of US$1,140 per policy, Vilsack said.

 

As it began the process of drafting the new plan, which will be in place for five years, the USDA had argued crop insurance companies were making excessive profits. The industry's return on equity in 2009 was 26.4%, the agency noted. The companies acknowledged doing well, but said they needed to maintain large reserves in case of widespread crop failures.

 

Vilsack said the new plan projects the long-term return for the companies at about 14.5%, which he called a fair and reasonable rate of return that maintains the stability of the system.

 

Crop insurance covers part of farmers' losses when crops fail and helps them get credit because lenders know they will be able to repay their loans. While participating farmers pay premiums, the government subsidises the programme to keep it affordable. Last year, it paid crop insurers US$3.8 billion, more than double the US$1.8 billion it paid in 2006.