Problems with Market Insurance in Agriculture

Abstract

Crop and revenue insurance programs have become an increasingly significant component of U.S. agricultural policy in the last several years. A myriad of insurance programs are currently available to producers and many more are under development. These programs have been shaped by a series of legislative actions intended to increase participation by increasing program benefits and expanding the coverage of programs. The 2000 Agricultural Risk Protection Act (ARPA) is the latest development in the ever-expanding crop insurance program. The Act provides $8.2 billion for expanding participation through increased premium subsidies and for development of new insurance programs. Although it is tempting to consider the U.S. federal crop insurance program within the context of private insurance markets, it is important to recognize that the program is an important vehicle for transferring economic benefits from the treasury to the farm sector. Over the 1981-99 period, for each dollar paid in by a farmer, an average of $1.88 was received back in indemnity payments.' Few private insurance programs operate under such conditions, at least for very long. Any comparison to private insurance markets, as is our task in this article, must at the outset recognize that the U.S. crop insurance program is first and foremost a government program intended to convey economic benefits to a particular segment of the economy--the U.S. farm sector.