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House of subsidies, part four

Note: This is the fourth in a series examining how government money helps Colorado industry. Today’s focus is federal crop insurance.

In Kit Carson County, close to the Kansas border but deep in Colorado’s breadbasket, only farms separate the big blue sky from the fruitful soil.

At least the soil is supposed to be fruitful.

Two severe, multi-year droughts hit farmers hard here on the Eastern Plains twice within the last dozen years. The second round left once green fields dangerously barren far into 2013, and agricultural businesses are still recovering, said Rick Palkowitsh, 46, who owns a wheat and corn farm in Burlington.

“We hope it starts raining soon,” he said, turning a haggard face toward yet another beautiful, cloudless mid-April Colorado sky.

Palkowitsh is among the thousands of Colorado farmers who receive emergency payments from the federal government in case of a natural disaster or severe price fluctuations. In 2012 alone, farmers across the state received $196.2 million in federal funds. That more than doubled the 2011 number, which was $84.9 million (see graphic).

As part of its investigative series on the impact of corporate subsidies on Colorado’s economy, CU News Corps analyzed the crop insurance program’s warranty and weighed the arguments of the program’s supporters and its opponents.

Severe weather such as drought provided fertile ground for farmers’ advocates as they successfully fought for an extension of crop insurance subsidies to be included into this spring’s $956.4 billion farm bill, the (see graphic), which President Barack Obama signed into law on Feb. 7.

According to the bill, the federal government will spend $90 billion over the course of the next 10 years to subsidize insurance policies for agricultural businesses in case their crops fail or prices decline. That’s a $7 billion hike compared to the 2008 version of the farm bill.

The number includes federal lawmakers’ plans to spend $7 billion to help cover farmer’s monthly deductibles even before the insurance kicks in – a concession offer for cutting direct payments out of the bill.

Those guarantees enrage critics who have fought long and hard to abolish direct subsidy payments to farmers.

The nonprofit Environmental Working Group, which specializes in research and advocacy in the areas of agricultural subsidies and corporate accountability, among others, opposed the new farm bill.

, the organization pondered, “Although the Congressional Budget Office estimates that annual spending on traditional farm subsidies will fall, the final bill includes price and revenue guarantees that will almost certainly cost more than expected.”

Farmer advocates disagree.

“This country depended on a safe and abundant food supply since day one,” said Norman Dalsted, a professor of agricultural and resource economics at Colorado State University’s College of Agricultural Sciences. “[The lawmakers] were very concerned about the safety net. In case of a drought or a harvest fallout, will agricultural businesses have income?”

Rick Palkowitsh knits his brow. During some of the drought years, he said, he could only harvest about 10 percent of his usual corn and 25 percent of his regular wheat yields.

“That’s why we need crop insurance,” he said. Unlike any other industry, Palkowitsh explained, farmers are at Mother Nature’s mercy.

“You definitely might have better odds in Vegas, to be truthful.”

The federal crop insurance program, administered by the , covers 50 percent of farmers’ losses. For a premium, farmers can buy additional insurance beyond the scope of what the government provides. In Colorado, companies like Armtech, Rain and Hail, John Deere and Farmers Union are among the companies that sell those extended crop insurance policies.

Palkowitsh said he covers his farm at the 75 percent deductible level, “the highest that is economically feasible in Colorado.” His premium is anywhere between $10-15 for every $100 of coverage.

Gallery

Hoping for a better year

The harassed 2007 Chevrolet Silverado drags a cloud of thick, brown dust behind it as Palkowitsh takes the unpaved county roads that sporadically link the farms in the area to inspect some of his 3,800 acres of farmland.

It’s mid-April, almost time to plant corn. The green wheat fields smoothly waver in a wisp of wind. They were planted in the fall.

The only reason they look so green right now, Palkowitsh said, is because of the heavy rainfalls in September 2013. While most of the Front Range was rattled by devastating floods, the nearly 12 inches of rain that fell on his farm within 24 hours substantially increased chances of a good harvest this year, Palkowitsh said.

“It was also the last decent rain we had.”

Agricultural businesses of all shapes and sizes make up nearly the whole economy here in Kit Carson County. The local jail is the other kind-of-major contributor.  the county is the top recipient of federal crop insurance funds. In 2012, $38 million in federal funds reimbursed Kit Carson County’s farmers for drought losses and price fluctuations.

Is that money well invested?

“[Farmers’] profits and productivity are crucial to American consumers,” said Norman Dalsted, whose family owns a wheat, soybean and canola farm in North Dakota, close to the Canadian border.

, Colorado farmers sold $2.43 billion worth of crops in 2012.

But Taxpayers for Common Sense, a nonpartisan federal budget watchdog group based in Washington, D.C., criticized the federal crop insuranceas a program on auto-pilot that has no payment caps, “meaning costs will continue to rise as more crops are added to the program and participation rates increase.”

The organization’s critique doesn’t stop there. “[Farm payments] also encourage excessive risk-taking by insulating agribusinesses and passing the risks to taxpayers.”

The EWG lamented that the crop insurance program “fails to include a means-testing provision that reduces insurance subsidies for the largest producers.” Such a provision was approved twice by the Senate, but never made it into the final farm bill text.

Like most farmers in and around Kit Carson County, Rick Palkowitsh inherited the business from his dad, who retired in 1998. Since then, it’s just Rick, his wife, Bonnie, and 3,800 acres of land.

Although enrolled in the crop insurance program, he isn’t one of those whom the EWG labels “largest producers.”

“What is a large farm?” Norman Dalsted wondered. “No one seems to have an explanation.”

“Some 95 percent of the farms [the EWG] refers to are still family-owned,” Palkowitsh said. “There are two or three generations working those farms. If you put that into perspective, are they really any larger?”

Palkowitsh himself has never had a job outside a farm. He was a junior in high school when he rented his first piece of farmland. Still, he said, today, thanks to small and extremely weather-dependent revenue margins, every farmer needs the government to step in.

“It would be very hard to convince anyone to enter agriculture without the government because of the risk. We have no guaranteed way of paying the banks their money back.”