Strengthening Integrity and Efficiency of Federal Farm Programs

The U.S. Department of Agriculture (USDA) spends about $16 billion per year on crop subsidies and crop insurance for farmers. While these federal farm programs help ensure that the U.S. farm sector continues to provide the American people with ample quantities of food and fiber, GAO's work has shown that opportunities for cost savings exist with strengthened oversight. For example, GAO reported in 2007 that USDA paid $1.1 billion to about 173,000 deceased individuals from 1999 through 2005 because it lacked management controls to verify the status of these recipients. GAO also found that each year USDA makes payments to thousands of individuals who have only limited involvement in farming because it lacks management controls to verify that payments go only to individuals who meet eligibility requirements. In addition, direct payments—one of the crop subsidies authorized under the Food, Conservation, and Energy Act of 2008—provide about $5 billion in fixed annual payments to farmers. For 2009 through 2011, the payments are based on 83.3 percent of a farmer's eligible acres. However, according to USDA, national net farm income—a key indicator of U.S. farm well-being—is expected to rise to a record $95.7 billion in 2008. Reducing direct payments to 80 percent of a farmer's eligible acres might save hundreds of millions of dollars over the 3-year period.

Furthermore, a significant portion of the $6 billion cost of the federal crop insurance program is paid to private companies to sell and service policies and does not reach farmers, the intended beneficiaries of the program. For example, more than 40 cents of every dollar USDA spends on crop insurance goes to companies administering the crop insurance program, while less than 60 cents goes to help farmers. In terms of profitability, the crop insurance companies earned an average rate of return on premium of 17.8 percent from the program from 1998 through 2006, whereas the rate of return for U.S. insurance companies selling private property and casualty insurance was 6.9 percent. In 2007, GAO testified that compensation to the crop insurance companies has been excessive, and payments should be reduced. While the Food, Conservation, and Energy Act of 2008 made marginal changes to the program by directing USDA to reduce payments to the companies by 2.3 percentage points for selling and servicing policies starting in 2009, these payments will still result in a significant portion of the program's cost going toward administering the program. Reducing payments to the companies by an additional 2.3 percentage points would save about $1 billion over 5 years.

Reducing crop subsidies to farmers and payments to companies participating in the crop insurance program would save hundreds of millions of dollars annually.

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Federal Farm Programs: USDA Needs to Strengthen Controls to Prevent Improper Payments to Estates and Deceased Individuals

GAO-07-818, July 9, 2007

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 50 pages)   Accessible Text   Recommendations (HTML)

Crop Insurance: Continuing Efforts Are Needed to Improve Program Integrity and Ensure Program Costs Are Reasonable

GAO-07-819T, May 3, 2007

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 22 pages)   Accessible Text

Farm Program Payments: USDA Needs to Strengthen Regulations and Oversight to Better Ensure Recipients Do Not Circumvent Payment Limitations

GAO-04-407, April 30, 2004

Summary (HTML)   Highlights Page (PDF)   Full Report (PDF, 75 pages)   Accessible Text   Recommendations (HTML)

Crop Insurance: Opportunities Exist to Reduce Government Costs for Private-Sector Delivery

RCED-97-70, April 17, 1997

Summary (HTML)   Full Report (PDF, 156 pages)