As federal spending on traditional farm programs diminishes and spending for crop insurance expands, crop insurance has drawn increasing scrutiny from critics of farm subsidies and those who want agriculture to contribute to deficit reduction. Many of the proposals to alter crop insurance policy in the 2012 farm bill could have serious ramifications for farmers and taxpayers and could weaken the very system that proved so crucial in 2011, say Keith Collins, former USDA chief economist, and Harun Bulut, senior economist for National Crop Insurance Services. The two economists recently co-authored a study on crop insurance.
The 2012 farm bill proposal of the House and Senate Agriculture Committee chairs incorporated several options, including a supplemental revenue farm program based on individual farm losses and supplemental area revenue plans sold by the crop insurance industry.
"While the area plans would likely expand crop insurance coverage, the supplemental individual farm revenue program would likely displace some crop insurance sales at high coverage levels," Collins says. "While the fate of this proposal is unknown, it illustrates key choices that have to be made, including government versus private delivery, government versus private risk bearing, and the extent of deductible, or shallow loss, coverage."
The use of crop insurance by U.S. farmers has grown sharply, increasing from 45 million insured acres in 1981 to 262 million in 2011; insured liability shows a sharper increase, rising from $6 billion in 1981 to more than $113 billion in 2011. More acreage, higher crop prices and increased coverage levels explain the dramatic rise.
Whatever structure emerges, the debate over farm and crop insurance subsidies is likely to continue. With deficit reduction in prospect for years to come and insurance so fundamental to risk management in all economic areas, the most sustainable safety net program for farmers long-term might be enhanced crop insurance—but likely with more restricted subsidization.