Crop Insurance Reform

The goal of the federal crop insurance program (FCIP) is to promote the economic stability of U.S. agriculture. Unfortunately, although the program is meant to serve as a safety net, it has become an example of wasteful government spending, enriching some farmers and private insurers at taxpayers’ expense.

Just six commodities—corn, soy, wheat, cotton, peanuts and rice—account for 94 percent of farm-program support. Many of these commodities are not used to provide affordable nutrition to the nation but are instead heavily processed into the fillers and sugars that are thought to have contributed to a variety of health issues among the American population.

This paper proposes 10 reforms to the FCIP that would reduce the financial burden on the taxpayer; eliminate wasteful and redundant spending via subsidies and handout programs; increase sustainability and resiliency; and improve food quality and nutrition.

Dramatically reducing crop insurance subsidies and introducing means testing for these subsidies will both curtail waste and allow smaller family farms a greater opportunity to grow and thrive.

Executive Summary

The goal of the federal crop insurance program (FCIP) is to promote the economic stability of U.S. agriculture. The Federal Crop Insurance Corporation (FCIC) administers this program and offers farmers insurance protection against the adverse impacts of below-normal yields and lower-than-expected market prices.

Since its founding in 1938, the crop insurance program has expanded in size and scope into a complex program that provides significant financial protection for farmers by transferring the risks of farming to the federal government. Unfortunately, although the program is meant to serve as a safety net, it has become an example of wasteful government spending, enriching some farmers and private insurers at taxpayers’ expense.

At the core of this issue is the fact that the program pays out significantly more to farmers than what farmers pay into the program: Farmers pay an average of only 38 percent of the premium, and the government subsidizes the remaining amount. In addition, the program is administered by 14 private market insurance companies that handle policy issuance, claims adjustment and other administrative functions. These private insurers are reimbursed in full for their administrative service costs, gaining an attractive profit margin from their involvement.

Overall, the crop insurance program costs taxpayers close to $10 billion annually. Its ample subsidies and administrative-cost reimbursement structure have made it a bloated government program that weakens efforts to improve risk management. Instead, it provides a win-win source of guaranteed support for farmers and guaranteed income for participating insurers. The only losers are taxpayers who are burdened with supporting a farm welfare program.

Understandably, many farmers are ardent supporters of the program because they benefit from its generous provisions, which practically eliminate any risk in farming. Yet the FCIP disproportionately benefits the farmers who need it the least—the country’s largest agribusiness farmers. Smaller farmers benefit significantly less from its provisions, and many farmers growing a wide variety of fruit and vegetable products do not benefit at all.

The goal of reducing risk in farming is an admirable one. We do not want American farmers to face the hardships they endured in the 1930s. However, considering today’s farming demographic and economic realities, the FCIP has gone too far. It excludes a large portion of the farming community from its protections, sends wrong signals, encourages unwise farming practices and is severely fiscally unsound. This paper proposes 10 reforms to the FCIP that would reduce the financial burden on the taxpayer; eliminate wasteful and redundant spending via subsidies and handout programs; increase sustainability and resiliency; and improve food quality and nutrition.