The Political Economy of the US Crop Insurance Program

Abstract

Taxpayer support for the crop insurance industry has grown rapidly since 2000 even though total crop acres insured is stagnant and the number of policies sold has declined. Staunch support for the program by key members of Congress meant defeat for proposals in the 2008 Farm Bill to significantly reduce cost. These proposals included large changes in the formulas used to calculate industry reimbursement and for new programs that would be integrated with or reduce the amount of risk insured by the crop insurance program. The reason for this resilience is program complexity and biased analysis, which has allowed the industry to claim that they are undercompensated despite a doubling of taxpayer support. One unforeseen outcome of the strength of the crop insurance industry in protecting its interests is that a new insurance program called Average Crop Revenue Selection (ACRE) was passed in the farm bill. Large unintended consequences that could be brought about by ACRE include the likely demise of the marketing loan and countercyclical programs, increased risk that the United States will violate its amber box limits, and in the not-too-distant future, a complete change in the way that US crop insurance is delivered to farmers.