When commodity prices fall, growers may collect payments from crop insurance as well as deficiecy payments from traditional crop subsidies, says economist Carl Zulauf of Ohio State University in an analysis. The target price payments offset the deductible – the portion of a crop not covered by insurance. “Given that crop revenue insurance is a key, if not the key, component of the crop safety net, an obvious policy question is whether the overlap between (target prices) and crop revenue insurance prices should be considered when designing the crop safety net?” Zulauf writes.
In the 2014 farm law, deficiency payments are provided through the Price Loss Coverage (PLC) program. Farmers could use PLC as a substitute for revenue insurance as a protection against falling commodity prices, Zulauf says, of they could enroll in PLC and buy lower-cost yield insurance.