The Impact of Federal Crop Insurance on the Conservation Reserve Program

Nathan Delay

doi:10.1017/age.2019.9

Abstract

I directly estimate the acre-for-acre impact of crop insurance participation on Conservation Reserve Program (CRP) enrollment at the county level. The government may be sponsoring competing interests if subsidized insurance expands production at the expense of CRP. I employ an instrumental variables technique to correct for endogeneity in insurance decisions. Results suggest that an additional 1,000 acres insured reduces CRP enrollment by about three acres, though effect sizes vary by region. Local policy initiatives such as conservation compliance incentives could help offset local environmental consequences of converting land from CRP to insured production.

Highlights

Farm policy in the United States has increasingly emphasized crop insurance as the main risk-management option for farmers
Regression results with county fixed effects and instrumental variables are reported in Table 2.29 Specification (1) of Table 2 does not include time controls, while (2) applies year fixed effects to capture the impact of changes in the national enrollment cap
Much of the literature on federal crop insurance shows that greater participation leads to small positive effects on acreage planted to insured crops

Summary

Introduction

Farm policy in the United States has increasingly emphasized crop insurance as the main risk-management option for farmers. To this end, the Federal Crop Insurance Corporation (FCIC) subsidizes crop insurance premiums so farmers do not bear the full cost of insurance. Program participation has increased rapidly in recent decades. The percentage of crop acres insured under the program grew from 36 percent in 1990 to 73 percent in 2000 and has since risen above 80 percent of all cropland. In 2012, the federal government spent over $14 billion on the crop insurance program, up from $1.4 billion in 1995 (USDA RMA 2016)

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Conclusion