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Reforming Crop Insurance Subsidies – Good News for Conservation

Reforming Crop Insurance Subsidies – Good News for Conservation

American Enterprise Institute (AEI) has some creative ideas about how to make the 2012 Farm Bill less expensive and more efficient – and in some cases, that could also make the 2012 Farm Bill better for conservation. In its recently released series on the 2012 Farm Bill called “American Boondoggle: Fixing the 2012 Farm Bill,” AEI presents ideas on everything from consolidating conservation title programs to increasing support for agricultural research and development. Perhaps one of the best ideas for reform is on crop insurance.

In his paper for AEI, “Premium Payments: Why Crop Insurance Costs Too Much,” Vincent Smith lays out the history of crop insurance in the U.S. and how a once essential program to assist Dust Bowl farmers ballooned into an average of $5.6 billion per year in government subsidies. Most consumers understand the importance of insurance to protect assets and on its face, it makes sense that farmers who depend on selling their crops and livestock for their livelihood would want to insure these assets in case of natural disaster or higher than usual losses. Unlike the types of insurance that most consumers are familiar with like auto insurance or homeowners insurance, the government subsidizes the cost of farmers’ premiums AND the expenses that insurance companies accrue in selling crop insurance policies AND the amount that companies have to pay farmers for crop losses.

Why is this important to those of who care about wildlife? Current crop insurance policies promote a food production system that has many adverse environmental impacts. Crop insurance subsidies as they exist now create incentives to farm marginal cropland, which in turn can contribute to environmental degradation associated with soil erosion and run-off. They also have been shown to promote plowing of some of America’s last native prairies.

One reform that Smith recommends is to replace the complex products offered now with weather-based insurance products that would still cover farmers’ weather-related losses but through a simpler, less expensive system. This kind of reform would also minimize incentives for “moral hazard behavior,” such as planting on marginal cropland.

Finally, although Smith doesn’t mention it in his paper, the 2012 Farm Bill should reform crop insurance to include conservation compliance provisions requiring farmers receiving crop insurance subsidies to implement practices that prevent soil erosion and minimize wetland loss.

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dotWild is the blog of scientists and policy experts at Defenders of Wildlife, a national, nonprofit membership organization dedicated to the protection of all native animals and plants in their natural communities.