MEP sees ‘clear warning’ inamerican Farm Bill

SCOTTISH EYES may have wandered across the Atlantic from time to time in search of a favourable agriculture policy, but there is little in the current US Farm Bill worth copying. That is the conclusion reached by SNP MEP Alyn Smith after listening to a presentation to the EU Agriculture Committee.

He said: “I see this as further evidence of the malign impact of publicly-funded crop insurance and risk management programmes, and a clear warning to EU policy makers not to adopt such proposals.”

The European Commission have in fact already proposed options of this type. Subsidies for crop insurance, mutual funds and what is known as an income stabilisation tool have been presented as ways of compensating farmers for excessive drops in income in bad marketing years.

Superficially these appear attractive, but Mr Smith insists that experience from the US reveals a number of significant flaws.

“In budgetary terms, they are very expensive. Taxpayers subsidise about 60% of the premiums across multiple crop insurance programmes, leading to a cost rising from around $2 billion in 2005 to $7.5bn in 2011, equivalent to around a third of the EU’s entire annual rural development budget.

“Moreover, payments fluctuate from year to year depending on market conditions, leading to great budgetary uncertainty,” said Mr Smith.

“Secondly, the programmes are extremely inefficient. The study calculated that taxpayers were in effect paying $2 of support for every $1 of support actually received by farmers in protection against risk.

“Around 16 private insurance companies manage the schemes and make ‘excess profits’while in practice returning most of the actual risk to the taxpayer.

“Administrative and operating costs reimbursed by the government to the companies run at 22-24%.”

Publicly-subsidised crop insurance was also criticised for creating “moral hazard” by encouraging farmers to take on excessive risks, such as planting crops in more risky areas. Crop insurance schemes also apparently create incentives for diversifying less.

Finally, crop insurance schemes, while currently not counted towards cropspecific support by the WTO, could easily be vulnerable to a challenge.

A successful challenge would leave the US in violation of its international trading requirements, and the same would apply to the EU if it took up crop insur- ance policies.

Crop insurance, or at least the parts which compensate farmers for low income in a particular year, are not too dissimilar to the deficiency payment scheme which was the main support tool used in the UK before accession to the EU in 1972.

The major difference with the US scheme is that it is administered through private insurance companies.

Mr Smith said: “This is important information, and fully bears out the opinion of HenryWaxman, ex-chairman of the House Oversight and Government Reform Committee, that insurance is “a text-book example of waste, fraud and abuse in federal spending.”

He said he has always been strongly opposed to subsidies from European funds for crop insurance and income insurance tools because:

The financial commitments could “potentially be extortionate and gobble up the entire rural development budget”.

We should not be “spending European funds on hand-outs to insurance companies”.

In a time of limited financial resources, “we should be focusing help on measures which prevent risk through upgrading our agri-landscape systems, such as agri-environmental schemes and diversification tools, not on compensatory measures for disasters which already have occurred”.

“If Europe wants to act on risk management it should focus on the proposals for mutual funds, where farmers pool their own resources to help deal with common risks and problems, not through subsidising the profits of private insurance companies,” he added.