Jayson Lusk Weighs in on Crop Insurance Subsidies- Saying Removal of Premium Subsidies Would Benefit California Farmers and Hurt Kansas ProducersTue, 09 Feb 2016 15:29:05 CST
Dr. Jayson Lusk, Ag Economist for Oklahoma State University, has written on his blog about an abstract on Crop Insurance that has been published in the Journal Applied Economics Perspectives and Policy where he takes a look at who wins and who loses with Crop Insurance subsidies provided to some producers in US Agriculture.
According to Dr. Lusk, "Farmers of the major commodity crops (and increasingly even minor crops including fruits and vegetables) are eligible to buy subsidized crop insurance. The insurance is, in principle, priced at actuarial fair rate (i.e., the price of the insurance is equal to the expected loss), but the government subsidizes the insurance premium paid by the farmer (in addition to some of the costs of the insurers). The average subsidy is around 65% of the premium amount. If there were a similar program for your car insurance, and the annual premium you pay for your car is $1000/year, you'd get back $650 in subsidy. In addition to this premium subsidy, the latest farm bill also has provisions to subsidize the deducible in the case of a loss. All this begs the question: what impact do these subsidies have on food prices and production? "
From the abstract:
“Results indicate that the removal of the premium subsidy for crop insurance would have resulted in aggregate net economic benefits of $622, $932, and $522 million in 2012, 2013, and 2014, respectively. The deadweight loss amounts to about 9.6%, 14.4%, and 8.0% of the total crop insurance subsides paid to agricultural producers in 2012, 2013, and 2014, respectively. In aggregate, removal of the premium subsidy for crop insurance reduces farm producer surplus and consumer surplus, with taxpayers being the only aggregate beneficiary. The findings reveal that the costs of such farm policies are often hidden from food consumers in the form of a higher tax burden. On a disaggregate level, there is significant variation in effects of removal of the premium subsidy for crop insurance across states. Agricultural producers in several Western states, such as California, Oregon, and Washington, are projected to benefit from the removal of the premium subsides for crop insurance, whereas producers in the Plains States, such as North Dakota, South Dakota, and Kansas, are projected to be the biggest losers.”
There's more to read from Dr. Lusk on his blog- which is available here.
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