|
Source: UNIVERSITY OF NEBRASKA-LINCOLN, 10/27/21
The U.S.
current taxpayer-subsidized crop insurance program represents a culmination of
a series of legislative acts, beginning in 1980 with the Federal Crop Insurance
Act, followed by the Federal Insurance Reform Act in 1994, and the Agricultural
Risk Protection Act (ARPA) in 2000. All acts aimed at encouraging producer
participation through increased premium subsidies and enhanced coverage
options. Increased subsidization was effective in increasing participation, as
more than 90% of corn acres were covered by some form of crop insurance by
2020. For 2021, premium subsidies in Nebraska for all crop insurance policies
ranged from just over $36,000 in Hooker County to $10 million in Furnas County,
with an average of just under $5 million (to view each county, see the
interactive map found here https://public.tableau.com/app/profile/jessica.groskopf/viz/CropInsuranceIndemnity-Subsidy/Sheet2). These
subsidies can produce unintended consequences, and the identification of these
unintended consequences can be useful to policymakers in rethinking future crop
insurance policy design.
One unintended consequence is farm consolidation, whereby farms are bought out
using rents acquired from subsidized insurance and consolidated into larger
farms. A legislative rise in premium subsidies, as was the case through ARPA in
2000, raises expected returns to participation in crop insurance. To the extent
that an increase in expected returns induces individual participating farmers
to increase crop supply (e.g., Yu et al. 2017), they may collectively see their
benefit from insurance offset by declining market revenue, and
non-participating farmers may incur losses as well. That is because the
increase in aggregate crop supply induced by participation in subsidized
insurance results in declining market prices (Young et al. 2001). This logic
provides a theoretical link between crop insurance subsidization, market prices
and output, and long-run market participation. How these factors interplay in
the real world is not clear. For more of this story, click here.
|