Crop Insurance Subsidies Cut In Obama Budget Proposal

Insurers that administer the U.S. Agriculture Department's crop insurance program will see their federal paycheck cut by $5.2 billion over the next decade, as the Obama administration looks to cut waste.

"Over the last several years, subsidies for crop insurance companies have grown rapidly without improving program coverage or customer service for farmers," the budget proposal released Thursday said. "Current subsidy levels exceed what is necessary to encourage farmer participation and they do not constitute a sound value to taxpayers."

The program's budget will be cut by $429 million in 2011, with annual cuts totaling $2.1 billion by 2014, and a total of $5.2 billion by 2019.

The cuts will both reduce payments to insurers and increase fees charged to farmers, but doesn't specify how much each will lose.

In 2007, farmers paid just over $6.5 billion in crop insurance premiums and the government paid insurers around $1.3 billion in administrative fees.

The program is administered by 16 insurers that participate in the program. Among the participants are Ace Ltd. (ACE), Wells Fargo & Co. (WFC), and American Financial Group Inc. (AFG).

Crop insurance revenue boosted earnings for insurers in 2007 and 2008. June floods that covered 4 million acres of Iowa and other midwestern farmland didn't hurt earnings much for the biggest insurers.

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]