WASHINGTON — At the same time that high crop prices are prompting farmers to expand into millions of acres of land once unsuitable for farming, Congress is considering expanding a federal insurance program that reimburses farmers for most losses or drops in prices.
The combination could cost the government billions of dollars if the newly farmed land does not yield enough crops and especially if crop prices fall.
Advocates, including farm interest lobbyists and lawmakers with a long history of creating and protecting benefits, argue that the new program would save Washington money by replacing a longstanding one costing $5 billion a year, known as direct payments, that pays owners of farmland a set amount regardless of whether they have planted crops.
Crop insurance has existed for decades, with the government now spending about $7 billion a year to pay about two-thirds of the cost of farmers’ premiums. Under the federal program, farmers can buy insurance that covers poor yields, declines in prices or both.
Tuesday, the Senate began debate on a farm bill, passed by the Agriculture Committee in April, that would set up another crop insurance subsidy, costing $3 billion a year, to cover any losses farmers suffer, known as deductibles, before their crop insurance policies kick in.
“Congress must give farmers the certainty they need to keep this industry thriving,” the Senate majority leader, Harry Reid, D-Nev., said last week. “This measure will create jobs and cut subsidies, and includes important reforms to make farm and food stamp programs more accountable and more defensible.”
The change from the existing direct payment program to the crop insurance subsidies as the primary safety net for farmers means that “payments are going to people who are actually farming,” Sen. Debbie Stabenow, D-Mich., chairwoman of the Agriculture Committee, said.
The Senate measure would cut about $23 billion in spending over the next 10 years, although that is far less than the Obama administration wanted.
Crop insurance supporters say insurance programs provide an important safety net for farmers who are subject to the whims of weather, pests and volatile markets. Farmers actually have to plant crops to receive insurance subsidies unlike the existing direct payment programs.
“Cuts in the crop insurance program would reduce the effectiveness of the most important risk-management tool farmers have,” said Sam Willett of the National Corn Growers Association.
Even some farmers argue that the subsidies are already generous to agribusinesses, especially with the government facing large deficits. Jim Faulstich, a farmer and rancher in Highmore, S.D., said he was in favor of farmers having crop insurance but added that the insurance should not be used to make money at taxpayer expense.
“If we as farmers expect taxpayers to support premium subsidies, it’s only fair that we grow on land that is capable of supporting it,” he said. “Could some of this land be profitable without the crop insurance subsidy? I think not.”
The sharp rise in the price of corn, wheat, soybeans and other crops, driven in large part by the growth of Asian economies, has caused farmers to plant land long prone to erosion and flooding. In the prairies and rolling hills of the northern Great Plains in the Dakotas and in Montana, millions of acres that are home to ducks and other waterfowl, and attractive grounds for hunters, are rapidly being turned into corn, soybean and wheat fields.
In some Montana counties, once-marginal land is selling for nearly $2,000 an acre, up from about $300 in 1991, as the high crop prices drive the need for more areas for farm production. According to data from the U.S. Fish and Wildlife Service, since 2007, South Dakota has lost nearly 500,000 acres of grassland to farming. In North Dakota, more than 1 million acres have become farmland over the same time period.
“Land that was once considered marginal is now being looked at more from a farm production and financial standpoint,” said Bruce Brock, a real estate auctioneer in Le Mars, Iowa. “With commodity prices being what they are, people are looking everywhere for land they can plant corn or some other high-priced crop.”
Brock said he recently sold about 1,300 acres of pastureland in South Dakota that fetched a price of about $2,600 an acre. The same land would have gone for $200 to $300 if it had remained grassland, he said.
By guaranteeing income, farmers say, crop insurance removes almost any financial risk for planting land where crop failure is almost certain.
“When you can remove nearly all the risk involved and guarantee yourself a profit, it’s not a bad business decision,” said Darwyn Bach, a farmer in St. Leo, Minn., who said that he is guaranteed about $1,000 an acre in revenue before he puts a single seed in the ground because of crop insurance. “I can farm on low-quality land that I know is not going to produce and still turn a profit.”
For years, the government provided an incentive for farmers and landowners to keep marginal land in conservation because years of farming had led to topsoil erosion. In 1985, the government started the Conservation Reserve Program, which paid farmers to let lands stay wild.
Today, the government pays about $50 an acre for farmers to keep their lands in conservation. But with land prices skyrocketing, many farmers are more likely to sell land than take a modest payment to preserve grassland.
Environmentalists, hunting groups and even some farmers say the prospect of expanding insurance will only speed the push to turn grasslands into farms. Insurance programs do not require farmers to adopt any conservation methods for the land.