The Bad Harvest: Crop Insurance Reform has Become a Good Idea Gone Awry

Many agriculture policy analysts have argued that partially subsidized crop insurance would be a more efficient and equitable way to protect farmers from disaster than ad hoc aid. Those arguments led to major crop insurance legislation in 1980, 1994, and 2000, as well as other significant reforms in several farm bills over the past twenty years. But the current federal crop insurance program is expensive, complex, and inefficient. The process has been captured by a set of stakeholders who have helped compound the scope, costs, and inefficiency of what at one time was a good idea. Benefits from the program are bid into land prices, creating barriers to entry for young farmers. And the subsidies have had unintended and perverse consequences on insurance company behavior. The current program favors the highest risk farmers and regions and has become so heavily subsidized that it may be even more inefficient and inequitable than ad hoc assistance.