Crop Insurance Lottery

A Lottery That’s a Sure Bet

February 10, 2016

Crop Insurance Lottery: Introduction

The federal crop insurance program has become the primary way taxpayers support farm income. At the same time, the program is coming under increased and well-deserved scrutiny because of its high cost, lack of transparency and environmental implications.

Its supporters are passionate about the program, arguing that the heavily subsidized insurance is the only thing that stands between farmers and financial ruin when bad weather shrinks yields or market prices fall. In a letter to editor of the Kansas City Star, Steve Baccus, past president of the Kansas Farm Bureau, wrote[1]:

For farmers, a lifetime’s work and every penny they have can be wiped out by a single hail storm, a drought or a market crash that erases any chance of profit regardless of how well crops do. That is why the vast majority of Kansas farmers purchase crop insurance every year and why it must remain available, affordable and viable.

With the cost of farming so high, most farmers must show proof of crop insurance to secure production loans from banks. This allows banks to make production loans to folks who might otherwise be judged too risky.

One of those groups is young farmers. They are the key to the future of American agriculture. For them, if they haven’t purchased crop insurance, one bad year and they are done.

This, of course, is exactly the role that crop insurance should play – a safety net that protects farmers from financial losses that threaten the viability of their business.

However, the crop insurance program we have today has strayed far from what most people would consider a safety net. The taxpayer-funded subsidies to lower the cost of premiums have grown so large and the payouts so generous that the program now acts as yet another income support program for farmers, rather than as a risk management tool.

This paper documents just how far the program has moved from the original concept of an insurance plan designed to manage the risk of potentially crippling financial losses caused by circumstances beyond farmers’ control.