What Harm Is Done By Subsidizing Crop Insurance?

Agriculture is subject to a wide variety of risks, including many hazards arising from wide-spread natural disasters. The U. S. federal crop insurance program, initially introduced on a small scale in 1938 in response to a campaign promise of President Franklin Roosevelt, now carries a total liability in excess of 114 billion and insures 262 million acres. The premiums paid by farmers in this program are highly subsidized (in excess of 60 % of the total premium) and private insurance companies also receive significant taxpayer subsidies to operate and administer the program. Private insurance companies are also provided with an advantageous taxpayer–supported reinsurance agreement. In recent years, the program has accounted for nearly 10 billion annually in subsidies to farmers and insurance companies, making it the most expensive agricultural commodity program. The program is currently being debated in Congress as the new 2012 Farm Bill is considered. If anything, indications are that the next farm bill may expand federal crop insurance programs by introducing a “shallow loss ” program intended to offer higher coverage levels. Whether such a program is implemented through the federal crop insurance program or as a component of other farm commodity programs remains to be seen. However, all Congressional observers agree that crop insurance will continue to play a key role in US farm policy.