Crop Insurance Crippling Cuts Off Credit
September 18th, 2007 by David Graves
During consideration of the 2007 farm, a great deal of attention has been given to the crop insurance program. There has been concern that the private sector delivery system that sells and services insurance for farmers has been overpaid. There are amendments to drastically change the program or combine it with other farm price support programs. The program is being used to an alarming extent to fund other programs unrelated to crop insurance. For example, the farm bill passed by the House cuts over $6 billion over ten years to pay for other programs.
If Congress persists in making severe cuts in the crop insurance program, it could create a situation in agriculture that is similar to the meltdown in the housing industry caused by the crisis in the subprime mortgage market. The subprime mortgage crisis has sent shock waves throughout the economy and has necessitated the intervention of the Federal Reserve Board. As a result of the subprime crisis, capital for business outside of the housing industry has been hard to get also.
Both the housing industry and agriculture require ready access to huge amounts of capital in order to operate. If the supply of capital for agriculture is cut back, we would have a meltdown such as is currently happening in the housing market. We had a crisis in the availability of capital in the 1980’s that required the restructuring of the Farm Credit System and made it necessary for the Farmers Home Administration to write off billions of dollars of farm loans.
In the current world economic order, when America’s productive capacity is being strained to the limit to supply our energy as well as food needs, it would be tragic to undercut American Agriculture because some in Congress do not understand the importance of crop insurance in making capital widely available.