Crop insurance hikes up the cost of cropland -- bad news for small farmers who own their own land and growers, large and small, who rent acreage from landlords.
That’s the conclusion of a seminal new study by Mike Duffy, professor emeritus of economics at Iowa State University, and the Center for Rural Affairs in Lyons, Neb.
The study shows that crop insurance premium subsidies are so excessive that they inflate the appraised value of farmland, raising sale prices and rental rates.
These financial distortions are added and usually overlooked consequences of the federal crop insurance program, on top of what the program exacts from taxpayers and the environment. Crop insurance costs taxpayers billions of dollars each year. It damages the environment by encouraging growers to farm on environmentally sensitive land, a practice that cascades into more soil erosion, water pollution and biodiversity loss.
Between 1989 and last year, crop insurance premium subsidies in Iowa alone amounted to 4.8 percent of the average value of all the state’s acres devoted to growing crops.
Over the past decade, crop insurance subsidies accelerated the yearly increase in farmland appraisal values. These values on average rose by 8.5 percent per year between 2006 and 2015, compared to 7.2 percent per year between 2001 and 2015.
Growers rent nearly 40 percent of American farmland. Rent is usually these growers’ largest per-acre cost. Rental rates have remained high at the same time commodity prices have dropped dramatically. When growers have to pay more for land because crop insurance raises the rental rates they pay, their overall costs of doing business increase. Facing higher costs and lower commodity prices, some growers are approaching the point where they will no longer break even. At that point, they have a serious decision to make – leave farming or hang in, hoping something will change.
Their landlords, on the other hand, are in a win-win situation. Their costs stay the same but the rent they can charge increases.
Crop insurance hurts small farmers, whether they rent or own the land. Large, wealthy farm businesses can afford to buy more farmland as costs increase, but small and beginning farmers cannot. Some of them can no longer afford to grow crops.
The federal crop insurance program should help farmers who need it most, not landlords and millionaire farm businesses. Through common sense reform, the next federal Farm Bill should fix the crop insurance program so that it no longer damages new and small farmers, growers who rent their land, taxpayers and the environment.