The pricetag for the federally subsidized crop insurance program more than doubled in a decade, blossoming to a $8.6 billion line item in 2014, writes Ohio State economist Carl Zulauf in a blog titled, “Why crop insurance has become an issue.” With passage of the 2014 farm law, crop insurance became the largest strand in the farm safety net. “Any large-expenditure program growing fast will attract attention,” writes Zulauf at farmdoc daily. “Moreover, the growth in crop insurance cost occurred during a period of generally low financial stress among crop farms.” Because of its size, the program faces new questions about its value to society compared to other ways to spend the money. In the past, the question was its service to farmers.
The most popular type of policy is revenue insurance that shields growers from the effect of low prices and poor yields. As policies become more complex, they are harder to explain to the public, writes Zulauf. “Crop insurance has another fundamental dilemma: There is no objective rationale for the current matrix of premium subsidy rates, either in total or by product and coverage level,” he writes. “The matrix of subsidy rates is a political equilibrium based on what society will pay.” On average, the government pays 62 cents of each $1 of the premium. “Failure to satisfactorily address the objective measurement question will ultimately lead to cuts and potential elimination of a program.”