PEORIA (MCT) — As yield estimates decline under the glare of a hot sun, crop insurance costs appear to be mounting.
In Illinois, where 80 percent of the state's farmland is insured, payouts on a drought-battered corn crop could top $3 billion, estimated Gary Schnitkey, University of Illinois Extension economist.
Nationally, crop insurance costs could soar as high as $30 billion, noted Bruce Babcock, an economics professor at Iowa State University. In an interview with syndicated columnist Alan Guebert, Babcock said insurance payments could reach "ginormous proportions."
While farmers fret over the condition of their fields, U.S. taxpayers will be footing 62 percent of crop insurance costs, said Babcock, adding that the higher costs go back to changes made in 2000, when Congress increased the share of crop insurance premiums paid by the taxpayer.
As the cost to insure crops dropped, farmers bought more insurance, further raising the tab for taxpayers, said the Iowa State professor.
"The cost of subsidizing crop insurance premiums has exploded, from $1.5 billion in 2002 to $7.4 billion in 2011," said Babcock.
With a new farm bill under consideration in Washington, crop insurance is expected to be a central part of the safety net extended to the nation's farmers.
"In the new bill, crop insurance has to be attractive enough for farmers to be willing to pay for the protection," said former Agriculture Secretary John Block, writing in Farm Week.
"Crop insurance is not a perfect solution. We don't want it to be so lucrative that farmers plant crops in high-risk areas just to collect insurance," he said.
Reducing taxpayer subsidies on crop insurance programs could still provide farmers with coverage, said Babcock. "The crop insurance industry would bear most of the cost (if) farmers switched to cheaper financial products that are less profitable to sell and service and that garner smaller federal subsidies," he said.
But change won't come easily, added Babcock. "The last few years have demonstrated that the crop insurance industry will put up a ferocious fight against any such proposal (involving cheaper financial products)," he said.