Who Receives Crop Insurance Subsidy Benefits?

Key Points

• Crop insurance subsidies are consistently heavily concentrated on the largest farms. The largest 10 percent of farms receive 56.4 percent, and the largest 5 percent receive 36.4 percent, of all crop insurance subsidies.
• Crop insurance subsidies per acre are larger for larger operations. The largest 1 percent of farms receive an average of $41 per acre, compared to $24 per acre for farms in the 80–90 percent range and $22 per acre for farms in the 50–80 percent range.
• The largest farm owners have high levels of wealth and income. The top 1 percent have an average adjusted gross income (AGI) of $1.5 million and average wealth of $15.7 million, eight times the AGI and five times the total wealth for farms in the 80–90 percent range and 12 times the AGI and nine times the total wealth for midsize farms in the 50–80 percent range.

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Introduction

It is often difficult—and in many situations seemingly impossible—for the major US political parties to find common ground. However, many members of Congress agree on one issue, regardless of their party affiliation. Whether the vehicle is crop insurance subsidies, price and income support programs, or ad hoc disaster relief, for decades a bipartisan congressional tradition has been that the federal government should give farmers substantial subsidy checks, regardless of the state of the farm economy.

In 2022, little has changed with the politics of taxpayer-funded payments to farmers, even though as a group farm families and farm business owners are much wealthier and enjoy substantially higher incomes than the average US household does.¹ Currently, there appears to be little serious discussion about moderating farm payments in the forthcoming 2023 Farm Bill. This is despite the agricultural sector as a whole enjoying well-above-average net farm incomes in 2021 and the agricultural sector expecting even higher revenues and incomes in 2022. Further, the sector is projected to receive above-average incomes in the next few years, albeit at slightly lower levels.²

Taxpayers with no vested interests in farm programs rarely weigh in on this issue, in part because annually farm subsidies, which run between $20 and $25 billion in most years, make up a miniscule fraction of the total federal budget, estimated to be over $6 billion in 2022.³ Nevertheless, especially because farm program outlays are heavily concentrated on fewer than 200,000 farms, we must consider what programs are being supported and whom these funds ultimately benefit.

In this report, we use farm-level data from the annual national Agricultural Resource Management Survey (ARMS) implemented by the US Department of Agriculture Economic Research Service to evaluate how crop insurance subsidies are distributed across farms. We focus on crop insurance policy premium subsidies since that is the annual mechanism through which direct payments are made to farmers. Those subsidies are a consistent indicator of the expected and annual average flow of program benefits from taxpayers to farmers over time.⁴ We examine the subsidy amounts paid to farmers based on each farm’s crop sales, allocating each farm to sales quantiles (for example, farms falling in the lowest 10 percent or highest 1 percent when ranked by such sales) to sort farms by size. This approach follows methods introduced in recent peer-reviewed academic research.⁵

We explore the distribution and level of subsidies received by farms of different sizes using the annual ARMS data for 2012–20, during which the key elements of the current federal crop insurance system—access to revenue-based and yield-based insurance and the structure of subsidy rates—have been relatively stable, even though new federal crop insurance products have been added since 2012.

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Notes

1. Vincent H. Smith et al., “Agricultural Policy in Disarray: An Overview,” in Agricultural Policy in Disarray, ed. Vincent H. Smith, Joseph W. Glauber, and Barry K. Goodwin (Washington, DC: AEI Press, 2018), 1:17–51.
2. Food and Agricultural Policy Research Institute, U.S. Agricultural Market Outlook, University of Missouri, March 2022, https://www.fapri.missouri.edu/wp-content/uploads/2022/03/2022-U.S.-Agricultural-Market-Outlook.pdf.
3. US Bureau of Economic Analysis, National Data, https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step= 2&isuri=1&1921=survey.  
4. Some analyses of federal crop insurance subsidies focus on the difference between actual indemnities received by farmers and the out-of-pocket amounts they paid for premiums. This measure is highly volatile because indemnity payments in any year are driven by growing conditions in that year, and such conditions vary considerably from one year to the next. Premium subsidies reflect the intended level of government support, based on the provisions that determine the program’s structure. See Vincent H. Smith, Joseph W. Glauber, and Barry K. Goodwin, “The US Federal Agricultural Insurance Program: Time for Reform?,” in Agricultural Policy in Disarray, ed. Vincent H. Smith, Joseph W. Glauber, and Barry K. Goodwin (Washington, DC: AEI Press, 2018), 1:71–107.
5. See Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Does Farm Size Matter? Distribution of Crop Insurance Subsidies and Government Program Payments Across U.S. Farms,” Applied Economics Policy and Perspectives 41, no. 3 (2019): 498–518.