Research & Commentary: Shallow Loss Coverage and the CROP Act

Published November 21, 2011

The U.S. agriculture industry receives billions of dollars ($6.5 billion in 2010) in federal insurance subsidies each year. Farmers buy crop insurance to provide protection against the risk of natural disasters and the loss of revenue due to declines in agricultural commodity prices. The current crop insurance program is a public-private partnership: Private crop insurers take on some lower-end risks, farmers pay premiums that cover part of the cost of coverage, and the federal government assumes catastrophic loss risks and subsidizes payments to farmers.

Congress is now debating expanding the already-ample insurance subsidies. One proposal is Rep. Randy Neugebauer’s (R-TX) Crop Risk Options Plan (CROP) Act, which would amend the Federal Crop Insurance Act to provide supplemental coverage beyond the current 75 percent coverage. This expansion—provided without any premium—would cover up to 90 percent of area-wide average losses. Neugebauer says this “would enable producers to insure crops against shallow losses, which can be 25 percent to 30 percent of a farmer’s expected production.”

The Heartland Institute, Environmental Working Group, and American Enterprise Institute are among the groups that oppose the CROP Act and similar “shallow loss coverage” provisions. The new coverage is a boondoggle that props up a farming industry that does not require additional safety nets.

The following articles examine the Crop Risk Options Plan (CROP) Act and shallow loss coverage from various perspectives. 

Agri-Business Backs Making Crop Insurance Boondoggle Even Bigger
R.J. Lehmann of Out of the Storm News reports on large agriculture companies pushing for expansion of crop subsidies with the new “shallow loss” insurance program.

Farm-State Lawmakers Pushing New Farm Subsidy
The Associated Press reports on farm-state legislators’ efforts to implement a new subsidy that could maintain farm incomes at a nearly four-decade high if prices fall or crops are destroyed by weather.

Farmers Facing Loss of Subsidy May Get a New One
William Neuman of the New York Times discusses the proposed new farm subsidy, quoting the American Enterprise Institute’s Vincent H. Smith as arguing the farming industry is healthy and doesn’t require the subsides it already receives.

Farmers Fight Cuts amid Crop Insurance Boom
Kristen Long of Politico examines the debate over crop insurance subsidies, the motivations for both sides, and legislators’ difficulties in rolling back crop subsidies against the power of the farm lobby.

Crop Insurance Bill Targets Shallow Losses
The Western Farm Press discusses Neugebauer’s (R-TX) Crop Risk Options Plan (CROP) Act and the changes it would make to existing programs.

The Revenue Insurance Boondoggle: A Taxpayer-Paid Windfall for Industry
Writing for the Environmental Working Group, Craig Cox and Nils Bruzelius analyze the revenue insurance program, arguing a federal program to cover “shallow losses” would exacerbate all the problems the current revenue insurance program creates.

Why Crop Insurance Costs Too Much
This American Enterprise Institute report examines the origins and evolution of the U.S. crop insurance program and outlines its complexity. The author also examines the economic issues surrounding the program, including concerns about delivery costs and the supply side. The paper ends with recommendations for policy change.