The Center for Rural Affairs (CRA), along with Mike Duffy, professor emeritus of economics at Iowa State University, released a report last week that explores the impact subsidized crop insurance places on land values. “Farmers have told us the program was helping megafarmers outbid beginning, and small and mid-sized farms on farmland, putting upward pressure on land values,” said Traci Bruckner, senior policy associate with the CRA. “We decided to investigate. And to explore the impact subsidized crop insurance places on land values, we worked with Mike Duffy.” Duffy’s research shows subsidized crop insurance indeed has an impact on land values. He further identified ways that impact occurs. The first is subsidization of the insurance premium. Duffy points out that the premium farmers pay is not the actuarially sound premium. Rather, it is the premium minus a subsidy from the government. That premium subsidy is a benefit the farmer receives. Secondly, crop insurance reduces the income risk associated with crop production, either through loss of revenue or crop failure. This risk reduction adds value because future returns are not as uncertain as they would be without crop insurance. Duffy used data available from the USDA Risk Management Agency (RMA) to examine whether federal crop insurance programs influence land values by the amount of the subsidy and the reduction of the risk. The RMA provides detailed summaries of their business for the nation, by crop, by state, and by year going back to 1989. For this study, he used Iowa as an example. The included table displays the impact. The first two columns show the value of risk reduction per acre. The last three columns show the percentage impact to land values in three ways: 1) with only the premium subsidy and no risk reduction factored in; 2) with a low factor of risk reduction; and 3) with a higher factor of risk reduction. “These findings demonstrate that subsidies have value to producers, and some of those subsidies get bid into land costs,” said Bruckner. “When those subsidies also serve to reduce risk, they have an even greater value than the subsidy alone. “While we agree that federal crop insurance is an important tool in the risk management toolbox, we can recognize it drives up production costs by increasing the cost of land. The net effect is to prop up the nation’s largest and wealthiest farms, often at the expense of smaller farms.” Brucker says the CRA intends to use the analysis to further its efforts to produce policy reforms that will ensure federal crop insurance programs work in the best interest of small and mid-sized family farms. “These are the people that those who oppose reform often suggest the program is designed to benefit,” Bruckner said. “We beg to differ. And we know that the nation needs reform that targets the root of the problems created by unlimited crop insurance premium subsidies.” Source - artesianews.com