Costly Farm Bill: New Analysis of Crop Insurance's High Price

In a just-released working paper, American Enterprise Institute (AEI) agricultural economists Vincent Smith, Bruce Babcock, and Barry Goodwin find that the Price Loss Coverage (PLC) and Supplementary Coverage Option (SCO) programs in the House version of the farm bill could cost taxpayers over $20 billion

Key findings:

  • High cost of PLC: If crop prices remain at historically high levels, program costs will be approximately $1.1 billion. However, if crop prices drop to their recent historical average levels, program costs could exceed $18 billion annually--almost four times the current cost of subsidies paid under the Direct Payments program, which the PLC would replace.
  • Crop insurance boondoggle continues: If prices remain at current high levels, the SCO will cost taxpayers $2.6 billion annually. Half a billion of those dollars would flow directly to crop insurance companies--who already receive $3 billion per year in other taxpayer subsidies. If prices drop to recent historical average levels, SCO costs would drop to $1.5 billion.
  • Skewed priorities: If crop prices moderate to recent historical average levels, the House PLC and SCO programs will cost taxpayers over $20 billion per year, more than all current spending on farm-oriented programs. This includes current programs that enhance farm incomes--like subsidized crop insurance, direct payments, disaster aid, and loan rate programs--in addition to publicly funded R&D and education programs that benefit consumers, processing companies, and farmers by improving agricultural productivity.


Read the full report here.

Vince Smith directs AEI's American Boondoggle: Fixing the 2012 Farm Bill project and is an agricultural economist at Montana State University, Bruce Babcock is an professor of economics at Iowa State University, and Barry Goodwin is the William Neil Reynolds professor of agricultural economics at North Carolina State University.

Learn more at www.AmericanBoondoggle.com

For media inquiries please contact Jesse Blumenthal at jesse@aei.org or 202.862.4870.

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About the Author

 

Vincent H.
Smith
  • Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU’s Agricultural Marketing Policy Center. He received his Ph.D. from North Carolina State University in 1987 and his bachelor’s and master’s degrees from the University of Manchester in 1970 and 1971. Dr. Smith’s current research program examines agricultural trade and domestic policy issues, with a particular focus on agricultural insurance, agricultural science policy, domestic and world commodity markets, risk management, and agricultural trade policy. He has authored nine books and monographs and published over 100 articles on agricultural and other policy and economic issues. His work has been recognized nationally through multiple national awards for outstanding research programs. In 2008, he became a Distinguished Scholar of the Western Agricultural Economics Association. Currently he is a Visiting AEI Scholar and co-director of AEI’s agricultural policy initiative. Dr. Smith is married and he and his wife, Laura, have two children, Karen and Meredith.
  • Email: uaevs@montana.edu
  • Assistant Info

    Name: Neil McCray
    Phone: 2028625826
    Email: neil.mccray@aei.org

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