Key Issues > Farm Programs
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Farm Programs

In the early 1930s, when American agriculture was hit hard by drought and economic disaster, Congress enacted legislation to protect farmers against the risks of low crop prices and bad weather, among other things. Since then, Congress has periodically passed legislation to help farmers manage the risks inherent to agriculture.

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The U.S. Department of Agriculture (USDA) administers programs to support farm income, assist farmers after disasters, and conserve natural resources. USDA provides this support through agricultural subsidies, insurance, and payments for implementing conservation practices, which cost about $20 billion annually.

The federally subsidized crop insurance program, for example, helps farmers manage farming risks, and it has become one of the most important programs in the farm safety net. This program is projected to cost the federal government an average of about $7.8 billion per year for 2018 through 2027.

However, this program’s costs have come under scrutiny due to national budget pressures. In assessing the cost of the federal crop insurance program, key considerations include:

  • Crop insurance program costs include companies’ underwriting gains—their profits on insurance policies—which averaged $1.3 billion per year for 2011 through 2017. In 2010, USDA negotiated with these companies on how much they can expect to profit from these insurance policies. However, the negotiated rate of return was 14.5 percent, at least 3.5 percentage points higher than market conditions would suggest it should be.
  • Of the roughly 875,000 farmers participating in the crop insurance program in 2011, 33,690 or less than 4 percent of the total number of participants received over 32 percent of the $7.4 billion provided to help subsidize insurance premiums.

Percentage of Farmers and Value of Premium Subsidies, 2011

  • The highest income participants are not necessarily better insurance risks than the other participants in the program. Consequently, reducing crop insurance subsidies for the highest income participants (e.g., those whose farm income exceeds $750,000) would have a minimal effect on the program and save millions of dollars. And since the highest income participants only account for about 1 percent of the program’s premiums, their decision to stay in or leave the program would not greatly affect the solvency of the crop insurance program.
  • Revenue policies (which protect farmers against crop revenue losses from declines in production or price) account for nearly 80 percent of all premium subsidies. Reducing the premium subsidy for these policies could result in hundreds of millions of dollars in annual savings, with minimal costs to individual farmers. The increase to farmers would generally be less than 2 percent of their average production costs per acre.
  • The federal government’s crop insurance costs are substantially higher in areas with higher crop production risks (e.g., drought risk) than in other areas. In higher risk areas, government costs per dollar of crop value were over two and a half times the costs in other areas for 2005 through 2013. If premium subsidies in higher risk areas were reduced, the government’s annual costs could be reduced by hundreds of millions of dollars. However, reductions in premium subsidies for higher risk areas could result in lower crop insurance participation and lower coverage levels among farmers in those areas. On the other hand, with increasing budgetary pressures, it is critical that federal resources are targeted as effectively as possible. One of USDA’s strategic objectives is to maximize the return on taxpayer investment in the department.

In addition to crop insurance, USDA also makes billions of dollars in payments annually to farmers to support their income. For example, the 2014 farm bill’s Price Loss Coverage program, which makes payments to farmers when the higher of the annual average market price or the loan rate for a marketing assistance loan of an eligible crop is less than a fixed statutory price, made payments totaling about $2 billion for 2017. To be eligible to receive payments from this program, a farmer must be actively engaged in farming, that is make significant contributions to the farming operation such as providing labor or management. In September 2013, we reported that USDA’s broad definition of active personal management made it difficult for USDA to determine whether an individual’s contribution is significant. We also reported that, under this broad definition, management responsibilities could be distributed among farming operation members to increase the number of members who could claim eligibility for payments.

The 2014 Farm Bill required USDA to promulgate new regulations to define a significant contribution of active personal management for farming operations that were not comprised entirely of family members (nonfamily farming operations). The 2014 Farm Bill also directed that the new regulations not apply to farming operations comprised solely of family members. In 2015, USDA issued new regulations. Among other things, these regulations added a new, more specific definition. This definition includes a list of critical management activities that qualify as a significant contribution if such activities are annually performed to either of the minimum levels established (500 hours or 25 percent of the total management hours required for the operation). The 2018 Farm Bill expanded the definition of family member to include first cousins, nieces, and nephews, thus increasing the potential pool of individuals eligible to be members of family farming operations.

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    • Steve Morris
    • Director, Natural Resources and Environment
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