Agricultural risk management and policy issues are front and center in the current farm bill debate. Historically, the policy environment has focused on direct payment programs and other income support measures. But, in a time of record-high farm incomes these policy options are difficult to defend. Risk management programs, such as federal crop insurance and revenue insurance-based commodity title programs, are arguably more politically palatable options and are taking a more central role in how government supports agriculture in the United States.
Federal crop insurance has grown from a small pilot program in the 1980s to what is now the cornerstone of U.S. agricultural support. Recently, the drastic growth of federal crop insurance has drawn much attention to how it functions and the distribution of subsidies under the program. Furthermore, it is projected that the federal crop insurance program will be the single largest program in terms of expected expenditures under any new farm bill proposals.
A variety of risk management options are proposed for the next farm bill, drawing further attention to issues surrounding the interaction of those options and crop insurance. In 2012, both the Senate and the House Agriculture Committee farm bill proposals proposed: a) eliminating current commodity title programs, including direct payments; b) creating new revenue-based commodity program options designed to cover “shallow” revenue losses; and c) introducing supplemental crop insurance coverage for shallow revenue losses. How these programs will function, the potential economic benefits, and the potential impacts on existing crop insurance market dynamics are relatively unknown. Research in this area will be of great interest to policy makers and the public.
In the current issues of Choices magazine, academic, industry and government economists and researchers examine key issues of risk management tools:
- Dairy policy: The Senate and House Agriculture Committee proposals include dairy title proposals with features that compete with each other and with current policy. The Dairy Security Act—which passed out of the House Agriculture Committee in May 2013 but failed on the House floor—appears to redistribute program benefits toward states with larger farms.
- Ten considerations on the role of crop insurance in the agricultural safety net.
- Farmer-owned crop insurance savings accounts may be the basis for an alternative approach to the existing crop insurance program.
- Some research indicates that the Federal Crop Insurance program could lead to increased use of debt financing by U.S. farms through the impacts of crop insurance on lender and producer behavior.
- An examination of deductible coverage vs. coinsurance in shallow-loss crop insurance shows that risk premiums and loss adjustment costs matter little when comparing policies. One conclusion: policy makers should base decisions more on costs to taxpayers than specific risk management features of alternative programs.
- Some of the proposed supplemental revenue programs would provide complements to existing underlying crop insurance coverage.
I encourage you to review these articles and provide your comments on the issues discussed, as well as the risk management tools that might be considered as part of public policies.