A new study by the American Enterprise Institute analyzes the various crop insurance programs and subsidies enjoyed by U.S. agriculture. Titled ‘Where the Money Goes: The Distribution of Crop Insurance and Other Farm Subsidy Payments,” the January 2018 study examines the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) program payments and crop insurance subsidy payments among U.S. farms.
A summary of the study states: “If the objective of cost-effective farm safety-net policies is to ensure a stable food supply by helping all farms manage otherwise volatile revenues, then the current programs do not direct taxpayer funds in ways that effectively protect farm operations that are most vulnerable to such shocks.” AEI predicts that by capping crop insurance policies, as well as ARC and PLC, taxpayers would reap substantial savings “with minimal adverse implications for 90 percent (and in some cases, more) of US farms.”
Top 10% get 68% of crop insurance
According to AEI authors Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, farms in the top 10 percent of the crop sales distribution received approximately 68 percent of all crop insurance premium subsidies in 2014 and that farms in the top 2 percent receive approximately $50 per acre in crop insurance subsidies, “ which is “more than four times higher than the average per-acre subsidy of $12.28.”
Farm subsidies and related programs have been criticized by members of Congress of both parties, as well as taxpayers concerned about the growing federal debt. Currently, about 70 percent of all crop insurance and other farm income safety net payments flow to just 10 percent of the largest crop-producing farm businesses, which comprise less than 100,000 farm operations. Each of these receives in excess of $140,000 per year
Who gets all that money?
Before the current study was published, AEI researcher Vincent H. Smith wrote in November 2017, “Those farms are owned by households with annual incomes and levels of wealth that are multiple times higher than those of the typical American family, and certainly far higher than those of families in poverty. Conservation subsidy payments also predominantly flow to the largest farm operations and wealthiest farming households.” Smith wrote, “In contrast, 10 percent of the smallest farms receive a mere pittance, on average no more than about $50 — from the federal crop insurance and safety net programs. And the bottom 80 percent, including midsize farms, receive less than 10 percent of all subsidy payments.”
In the January AEI study, Smith and the other others show that farms the top 20 percent of the crop sales distribution received more than 82 percent of ARC and PLC payments in 2015. “Farms in the top 5 percent of crop sales received close to the total amount of ARC and PLC payments ($299 million) received by farms in the lowest 90 percent of crop sales ($358 million).
“Finally, the top 10 percent of farms in crop sales were estimated to receive nearly $3 billion in total ARC, PLC, and crop insurance subsidy payments in 2015, and farms in the bottom 80 percent of crop sales received approximately the same total amount of ARC, PLC, and insurance subsidy payments as farms in the top 2 percent.”
The study states that capping crop insurance subsidies to $40,000 per farm would have resulted in $2.02 billion in savings (approximately 42 percent of all premium subsidy outlays) in 2014 alone, while affecting less than 5 percent of all farms. A $30,000 cap on premium subsidies, the study showed, would have saved $2.51 billion, while a less stringent $50,000 cap would have saved $1.74 billion in taxpayer outlays.
Limiting per-farm ARC and PLC payments to a $125,000 cap would affect 17.2 percent of enrolled farms, the study posits, while the majority would fall in the top 10 percent of crop sales. Total savings would have been approximately $70 million. A $250,000 cap on per-farm ARC, PLC, and crop insurance subsidy payments would result in $273 million in savings, of which 67 percent would come from farms in the top 1 percent of the crop sales distribution.
When evidence-based analyses in the mid-2000s led to the elimination of the Direct Payments (DP), Countercyclical Payment (CCP), Average Crop Revenue Election (ACRE), and Supplemental Revenue Assurance (SURE) programs by the 2014 Farm Bill, they were replaced by the new Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs. Joined with the federally subsidized crop insurance program — the Stacked Income Protection Plan (STAX) for cotton and a new Dairy Margin Protection Program — ARC and PLC constitute the current farm safety net. “Federal expenditures on ARC, PLC, and the federal crop insurance program are estimated to have averaged $12–$14 billion per year since 2014 ,” wrote the authors of the study, “and are expected to be similarly funded between 2018 and 2027."
The Congressional Budget Office has estimated that between 2017 and 2027, say the authors, more than 70 percent of ARC, PLC, and crop insurance payments will go farmers producing just three crops: corn, soybeans, and wheat.
Based on data from the Agricultural Resource Management Survey (ARMS), the study’s authors estimate that in 2014 and 2015, “approximately 60 percent of total crop insurance subsidies and ARC and PLC government subsidies were paid to producers in the highest 10 percent of the crop sales distribution.”
Furthermore, the study found that farms in top 5 percent of crop sales received nearly 40 percent of all program payments, but more than 50 percent of farms in the lower 70 percent of the crop sales distribution received no subsidy or program payments. The authors assert that by applying more stringent restrictions on existing agricultural programs and crop insurance subsidies, only farm businesses in the top 5–7 percent of the crop sales distribution would be affected, but results in a “30–40 percent reduction in public expenditures.”