CROP INSURANCE: Considerations in Reducing Federal Premium Subsidies

Federally subsidized crop insurance, which farmers can buy to help manage the risk inherent in farming, has become one of the most important programs in the farm safety net. Revenue policies, which protect farmers against crop revenue loss from declines in production or price, are the most popular policy type and account for nearly 80 percent of all premium subsidies. The crop insurance program's cost has come under scrutiny while the nation's budgetary pressures have been increasing. This report examines (1) trends in federal crop insurance costs and farm sector income and wealth from 2003 through 2012; and (2) the potential savings to the government and impacts on farmers, if any, of reducing federal premium subsidies for revenue policies. Tables and figures. This is a print on demand report.

" Federally subsidized crop insurance, which farmers can buy to help manage the risk inherent in farming, has become one of the most important programs in the farm safety net. Revenue policies, which protect farmers against crop revenue loss from declines in production or price, are the most popular policy type and account for nearly 80 percent of all premium subsidies. The crop insurance program's cost has come under scrutiny while the nation's budgetary pressures have been increasing. GAO was asked to look at the cost of the crop insurance program. This report examines (1) trends in federal crop insurance costs and farm sector income and wealth from 2003 through 2012 and (2) the potential savings to the government and impacts on farmers, if any, of reducing federal premium subsidies for revenue policies. GAO analyzed USDA crop insurance program data and farm sector income and wealth data from 2003 through 2012 (most recent year with complete crop insurance data); reviewed economic literature and documents from stakeholders including farm industry groups and researchers; and interviewed USDA officials. "

Many farm policymakers generally consider the federal crop insurance program as the principal tool to help farmers cope with the variable impact of weather on crop yields. The program makes available subsidized policies that farmers may purchase each year to protect against yield and/or revenue declines during a particular growing season. Policies are available for about 130 commodities, covering crops supported by traditional farm programs (e.g., corn, wheat, and soybeans) as well as many fruits, vegetables, tree nuts, nursery crops, pastureland, and other commodities. Farmers pay a portion of the premium, unlike farm programs, which are free. Premium subsidies for federal crop insurance have been instrumental in expanding program participation to levels acceptable to policymakers. This book examines current premium subsidies, proposals to limit them, and potential options for Congress. Furthermore, this book examines trends in federal crop insurance costs and farm sector income and wealth from 2003 through 2012; and the potential savings to the government and impacts on farmers, if any, of reducing federal premium subsidies for revenue policies.

The federally subsidized crop insurance program helps about 1 million participants manage the risk inherent in farming. In recent years, the government's costs for the crop insurance program have increased substantially, and these costs have come under scrutiny as the nation's budgetary pressures have been increasing. Unlike farm and conservation programs, the crop insurance program provides the same level of subsidies to participants regardless of their income. GAO was asked to examine the potential effects of reducing premium subsidies for the highest income crop insurance participants. This report examines: (1) the percentage and characteristics of participants that would be affected; (2) the impact, if any, on the crop insurance program; and (3) how USDA could implement a reduction in premium subsidies for the highest income participants. GAO analyzed RMA crop insurance data and FSA data on compliance with income limits from 2009 through 2013 (most recent year of available data), analyzed RMA data to examine the impact on the program and calculate potential savings, reviewed agency guidance and industry and academic publications, and interviewed USDA officials and stakeholders.