Valerie Marshall is a law student at Duke University School of Law and guest contributor on this blog.
In FBLE’s 2023 Farm Viability report, FBLE recommends establishing a system for reducing crop insurance subsidies to farms as their annual gross income increases. The National Sustainable Agriculture Coalition (NSAC) recently released a report about the effects of placing caps on crop insurance subsidies. This report reviewed five possible types of subsidy caps, describing how many farms the caps would affect and how much money the government would save by implementing these caps.
Proponents of federally subsidized crop insurance argue it stabilizes the food production system by providing farmers with reduced variations in farm revenues each year. Currently, farmers receive an average of a 60% discount on their crop insurance policy in the form of subsidies paid by the federal government. While this system is intended to benefit all farmers, the growing trend is that the subsidies heavily benefit the largest farms, whom many argue do not need the subsidies in order to stabilize their prices or keep them in business. A study in 2019 found that the largest 10% of farms received over 60% of subsidy benefits. Implementing caps for crop insurance subsidies would limit excessive payments to the largest farms while still preserving assurance to small and medium farms. It would also save taxpayers money, or allow expenditures to be redirected towards other programs.
NSAC’s study evaluates five types of subsidy caps:
(1) a $50,000 cap on subsidies per farm;
(2) eliminating premium subsidies for farmers with an Adjusted Gross Income (AGI) of over $250,000, $500,000, $750,000, or $900,000;
(3) reducing premium subsidies by 15% for farmers with an AGI of over $250,000, $500,000, $750,000, or $900,000;
(4) reducing premium subsidies by 50% for farmers with an AGI of over $250,000, $500,000, $750,000, or $900,000; and
(5) phasing out premium subsidies starting at a 50% reduction on production exceeding $1 million and reaching 100% on production exceeding $2.5 million.
Overall, the study found that the eliminating and reducing subsidies based on AGI scenarios when applied to farms with an AGI over $250,000 would create the largest percentage of farms receiving fewer subsidies, while the same scenarios, but when applied to farms with an AGI over $900,000, created the smallest percentage of farms receiving fewer subsidies. The subsidy-cap at $50,000 scenario and eliminating subsidies based on AGI scenario when applied to farms with an AGI over $250,000, saw the largest amount of expenditures savings, with $16.6 billion and $20.20 billion in savings respectively. The main takeaway from these findings is that the number of farms affected and amount the government saves in expenditures is not always correlated. While the scenario that eliminated subsidies based on AGI affected a lot of farms and produced the largest savings, the subsidy-cap at $50,000 scenario also saved a lot in expenditures but did this while affecting fewer farms.
The report does not provide a conclusion on which subsidy cap system would be the best. Policymakers can take this information and decide what policy to implement based on the goal they have for a subsidy cap. One goal may be a general reduction in government expenditures, while another goal could be affecting the least number of farms. Most advocates for small farm viability would probably agree that it’s important to reduce subsidies to the largest farms while preserving or expanding support for small farms. This aligns with the goal in FBLE’s report on Farm Viability of reducing government subsidization of inflated profits through crop insurance. The cap of $50,000 scenario would not be targeting large farms specifically because it caps the subsidies received by all farms. However, only applying the reducing or eliminating subsidies based on AGI scenarios to farms with an AGI over $900,000 better targets the subsidy cap to only affect larger farms.
The scenario of reducing subsidies based on AGI is most in line with FBLE’s recommendations for the 2023 Farm Bill. Hopefully the NSAC report outlining the benefits of this policy will help bring it into conversations when renewing the Farm Bill next year.
The views and opinions expressed on the FBLE Blog are those of the authors and do not necessarily reflect the official policy or position of FBLE. While we review posts for accuracy, we cannot guarantee the reliability and completeness of any legal analysis presented; posts on this Blog do not constitute legal advice. If you discover an error, please reach out to contact@farmbilllaw.org.
