The Effects of Premium Subsidies on Demand for Crop Insurance

Book excerpt: The first 50 years of the Federal crop insurance program were marked by low enrollment levels. To boost program participation, legislation in 1994 and 2000 increased premium subsidies. In the years since, the jump in enrollment coupled with high commodity prices caused significant increases in program costs. This report examines the effects of premium subsidies on the demand for crop insurance across major crops and production regions. Findings show that while increases in subsidies can induce farmers to enroll more land, they primarily encourage them to adopt higher levels of coverage on land already enrolled. Midwestern and wheat producers are more responsive to changes in subsidies relative to other regions and crops. Findings suggest that changes to current premium subsidies have the potential to alter producers' reliance on crop insurance to help mitigate farm risk.