Less than 10% of Farmers Would Feel Effects of Cap on Premium Subsidies
WASHINGTON (April 28, 2016) – Less than 10 percent of farms that plant major cash crops in some of the largest farm states would feel the impact of proposals to cap taxpayer-financed crop insurance premium subsidies at $50,000 a year, a new policy study from R Street Associate Fellow Vincent Smith finds.
Using publicly available data from the most recent agricultural census on farm size and crop mix – as well as information from U.S. Department of Agriculture and the Risk Management Agency on crop prices, premium rates, premium subsidies and the proportion of farms that signed up for different levels of coverage and types of policies – Smith simulated the impact of premium subsidy caps for about 250,000 representative farms that plant corn, cotton, peanuts, rice, soybeans and wheat in 12 geographically diverse farm states.
“We find only about 9 percent of the estimated 254,233 farms in the 12 states that plant corn, cotton, peanuts, rice, soybeans and wheat would experience a reduction in their crop insurance premium subsidy payments under a $50,000 premium subsidy cap,” Smith writes. “The absolute size of the reductions in those payments, in dollar-amount terms, would be relatively small for most of the affected farms and would be close to negligible relative to their annual average revenues from market sales, which for the vast majority of the affected farms are well over $750,000 a year (and in many cases, are in the multiples of millions of dollars).”
Though farm lobby advocates routinely suggest that making changes to federal crop insurance programs that don’t expand subsidies for farmers would have dramatically negative effects on U.S. crop production, Smith suggests such dire predictions may be greatly exaggerated. In fact, he finds even more stringent annual caps – such as $30,000 or even $10,000 – would have only relatively limited impact on crop production.
“One set of interest groups that would be very concerned about this shift is the crop insurance industry itself, including the private primary insurers that service all federal crop insurance policies, the independent insurance agents that sell those policies and the multinational reinsurance companies that, historically, have handled much of the insurance risk faced by the private primary crop insurers,” Smith writes. “In other words, it is reasonable to expect that a broad-based coalition of farm and crop insurance groups would strongly oppose all legislative initiatives to introduce premium-subsidy caps, no matter how reasonable, from the broader perspective of social policy, those initiatives might be.”
