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The Crowd-out Effect of Crop Insurance on Farm Survival and Profitability

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  • Kirwan, Barrett E.

Abstract

The Federal Crop Insurance program has expanded dramatically over the past two decades---from $140 million in subsidies and 84 million acres covered to nearly $10 billion in subsidies and 260 million acres covered. The effect this has had on farmers' overall risk exposure and profitability is unclear. Self-selection and market dynamics have masked the direct effect of crop insurance. This paper uses numerous changes to the crop insurance program to isolate crop insurance's direct effect on risk exposure and, ultimately, profitability. I find that crop insurance increases debt holdings and acres cash rented and decreases the use of marketing contracts. Crop insurance has no effect on farm profitability. Taken together, crop insurance crowds out other risk-management strategies without improving farm profitability.

Suggested Citation

  • Kirwan, Barrett E., 2014. "The Crowd-out Effect of Crop Insurance on Farm Survival and Profitability," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170881, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:170881
    DOI: 10.22004/ag.econ.170881
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    References listed on IDEAS

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    1. Shawn Cole & Barrett Kirwan, 2009. "Between the Corporation and the Household: Commodity Prices, Risk Management, and Agricultural Production in the United States," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1243-1249.
    2. Joseph W. Glauber, 2013. "The Growth Of The Federal Crop Insurance Program, 1990--2011," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 482-488.
    3. Hart, Chad E & Lence, Sergio H, 2004. "Financial Constraints and Farm Investment: A Bayesian Examination," Journal of Business & Economic Statistics, American Statistical Association, vol. 22(1), pages 51-63, January.
    4. Schnitkey, Gary, 2011. "Crop Insurance in 2011," farmdoc daily, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics, vol. 1, March.
    5. Irwin, Scott H. & Good, Darrel L., 2010. "Alternative 2010 Corn Production Scenarios and Policy Implications," Marketing and Outlook Briefs 183524, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    6. Collins, Keith J. & Bulut, Harun, 2011. "Crop Insurance And The Future Farm Safety Net," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 26(4), pages 1-7.
    7. Woodard, Joshua D. & Sherrick, Bruce J. & Schnitkey, Gary D., 2011. "Actuarial Impacts of Loss Cost Ratio Ratemaking in U.S. Crop Insurance Programs," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), pages 1-18, April.
    8. Peter J. Barry, 1998. "Credit Constraints, Farm Characteristics, and the Farm Economy: Differential Impacts on Feeder Cattle and Beef Cow Inventories," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 708-723.
    9. Barry K. Goodwin & Vincent H. Smith, 2013. "What Harm Is Done By Subsidizing Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 489-497.
    10. Ralph Bierlen & Allen M. Featherstone, 1998. "Fundamental q, Cash Flow, and Investment: Evidence from Farm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 427-435, August.
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    Cited by:

    1. Madhu Khanna & Ruiqing Miao, 2022. "Inducing the adoption of emerging technologies for sustainable intensification of food and renewable energy production: insights from applied economics," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(1), pages 1-23, January.
    2. Mohit Anand & Ruiqing Miao & Madhu Khanna, 2019. "Adopting bioenergy crops: Does farmers’ attitude toward loss matter?," Agricultural Economics, International Association of Agricultural Economists, vol. 50(4), pages 435-450, July.
    3. Donatella Porrini & Giulio Fusco & Pier Paolo Miglietta, 2019. "Post-Adversities Recovery and Profitability: The Case of Italian Farmers," IJERPH, MDPI, vol. 16(17), pages 1-12, September.
    4. Ruiqing Miao & Madhu Khanna, 2017. "Effectiveness of the Biomass Crop Assistance Program: Roles of Behavioral Factors, Credit Constraint, and Program Design," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(4), pages 584-608.

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    Keywords

    Agricultural and Food Policy; Agricultural Finance; Risk and Uncertainty;
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