Double Indemnity: Crop Insurance and the Failure of U.S. Agricultural Disaster Policy
For the past 30 years, Congress has struggled with how to best provide protection against natural disasters to agricultural producers. In 1980, Congress replaced a standing disaster program with subsidized crop insurance. The Federal Crop Insurance Improvement Act made crop insurance the primary form of disaster protection for producers. Standing disaster programs were seen as too costly and were criticized for encouraging production in marginal areas. Crop insurance was seen as “the most efficient and equitable method of providing disaster assistance” (GAO 1980, p. iii).
At the time of passage of the 1980 act, Congress envisioned a participation rate approaching 50 percent of eligible acres by the end of the decade. Yet despite premium subsidies and expanded coverage, crop insurance participation grew very slowly. When a major drought struck the Midwest in 1988, only 25 percent of eligible acreage was enrolled in the program nationwide; participation was even less in hard-hit states like Illinois and Indiana (Chite 1988). Widespread crop losses and poor participation in the insurance program prompted Congress to pass supplemental disaster legislation throughout the decade, including almost $5 billion in disaster assistance to cover crop losses in 1988 and 1989 alone (Glauber and Collins 2002).
By 1990, the program was seen as so costly that the Bush administration proposed eliminating the program altogether and replacing it with a standing disaster program. The proposal was received with little interest in Congress, but the criticism of the crop insurance program remained unabated. Widespread crop losses due to the 1993 floods in the Midwest prompted yet another disaster bill. This time, however, Congress and the Clinton administration agreed on the Crop Insurance Reform Act of 1994, which authorized additional premium subsidies to increase participation. Yet despite increases in participation, Congress passed ad hoc disaster legislation covering losses in 1998, 1999, and 2000. In 2000, Congress passed the Agricultural Risk Protection Act, which provided further subsidies to encourage crop insurance purchases.
Today, twenty-six years after passage of the 1980 act and two reform bills later, crop insurance has become a major fixture in the farm safety net, and by most measures of participation, crop insurance is a success. Crop insurance currently provides coverage for a loss in yield or a loss in revenue (yield and price) for over 350 commodities in all 50 states and Puerto Rico. Over 80 percent of insurable area is enrolled in the program and almost 65 percent of those acres are insured at coverage levels of 70 percent or higher. For the 2005 crop year, there were 1.2 million federal crop insurance policies in force, covering 246 million acres, with a liability of $44.3 billion.