Is it Time for Sliding Scale Subsidies on Crop Insurance?

I am attending and speaking at the Top Producer Executive Network (TPEN) Signature event that will conclude tomorrow.  Last night during the Super Bowl, I had a discussion regarding crop insurance subsidies and we discussed whether it might be time for some type of sliding scale on crop insurance subsidies.  Right now, the average subsidy is about 62% and it really only changes based on the type of coverage selected, etc., but there is no change in the subsidy based on the price of the crop insured.

For example, if the corn spring insurance price is $6, the subsidy percentage is the same as when it is $4.  Therefore, should there be consideration for increasing the subsidy when prices are low and decreasing the subsidy when prices are high.  I would believe that farmers would be willing to have less subsidy when corn is at $6 than when it is at $4.  The need for crop insurance is likely greater at $4 than at $6.

We know that the new farm bill will have discussions regarding the correct amount of subsidies for crop insurance and we also likely know that farmers need it now more than ever.  This may be an option that will be reviewed by the writers of the farm bill.

We will keep you posted.

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation.

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Comments

Paul, I really enjoy you article on your blog. One question I wish you would address is how to handle the new format on the O J Obrien’s 1099. I had no problem handling the old 1099’s which basically were box 8,9,10, and 11 on the new form. But what about box 1e the cost basis. Is that already taken out of box 11 amount or do we need to substract it again.

I would contend that the need for crop insurance subsidy would be greater at $6 corn than at $4 corn. If inputs would not move with the cost of the commodity, I would possibly agree. But, $6 corn, inputs have a tendency to rise with the price of corn and more inputs will be used to maximize yield. Kind of like the price of diesel, goes up like a rocket, but comes down like a feather. Increase the subsidy even more to allow more farmers to take advantage of 85% coverage. Allow 95% coverage at lower subsidy level. Crop insurance is one of the best risk management tools a farmer can have. It’s also rife with fraud too. That’s where FCIC/RMA needs to have better fraud controls over farmers and agents alike.

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