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Caps on Crop Insurance Subsidies Would Not Devastate Growers

Caps on Crop Insurance Subsidies Would Not Devastate Growers

Thursday, April 28, 2016

If you care about the environment, human health or helping small growers, you should support reform of the federal crop insurance program.

After all, most crop insurance premium subsidies go to the largest, most successful agricultural businesses. And studies show that these subsidies tend to drive up the price of farmland as well as give growers incentives to plant crops on high-risk and environmentally sensitive land.

One question that often comes up is: What impact would reform have on growers? Today, we have a clearer picture.

Limiting crop insurance premium subsidies would have a modest financial impact on only a small percentage of growers, and it would not ruin U.S. crop production – as many supporters of the program claim.

That’s one of the findings of a new study by Vincent Smith, professor of economics at Montana State University, writing for the R Street Institute, a non-profit public policy research organization. Smith found that placing a cap on the premium subsidies growers receive would barely affect their finances at all.

Smith analyzed data for a variety of crops in 12 states: Illinois, Indiana, Iowa, Minnesota, Nebraska, North Dakota, Ohio, Kansas, Oklahoma, Texas, Georgia and Arkansas. He found that if premium subsidies were capped at $50,000 a year, it would affect only 9 percent of the 254,233 farms in these states. Most of those farms have annual sales over $750,000, and the cut in subsidies would hardly influence these growers’ bottom lines, Smith says.

Corn and soybean growers in the Midwest, who receive large premium subsidies, would especially not be hurt by subsidy caps. A $50,000-a-year cap in Iowa, Illinois, Indiana and Ohio would only have an impact on farms with annual revenues over $3 million. Even a $10,000 cap would only apply to growers who make more than $500,000 a year. A $10,000 cap would reduce premium subsidies to these farms by less than $12,000 a year; with revenues of $500,000, a $12,000 drop in government support is peanuts – barely 2 percent.

Many farm subsidy programs already have payment limits, like the $125,000 cap on the Agricultural Risk Coverage and Price Loss Coverage programs. Congress should follow the example of these other programs and cap crop insurance premium subsidies. It would have an incredibly small impact on most farmers but save considerable taxpayer dollars.  

 

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