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This study examines the distribution of Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) program payments and crop insurance subsidy payments among US farms. Data from the United States Department of Agriculture (USDA) Agricultural Resource Management Survey, USDA Farm Service Agency, and USDA Risk Management Agency are combined to characterize farms in terms of the value of crop sales.
The results of the analysis indicate that farms in the top 10 percent of the crop sales distribution received approximately 68 percent of all crop insurance premium subsidies in 2014 and that farms in the top 2 percent receive approximately $50 per acre in crop insurance subsidies, more than four times higher than the average per-acre subsidy of $12.28. In addition, farms in the top 20 percent of the crop sales distribution received more than 82 percent of ARC and PLC payments in 2015. Farms in the top 5 percent of crop sales received close to the total amount of ARC and PLC payments ($299 million) received by farms in the lowest 90 percent of crop sales ($358 million). Finally, the top 10 percent of farms in crop sales were estimated to receive nearly $3 billion in total ARC, PLC, and crop insurance subsidy payments in 2015, and farms in the bottom 80 percent of crop sales received approximately the same total amount of ARC, PLC, and insurance subsidy payments as farms in the top 2 percent.
The study also examines the effects and trade-offs of implementing payment restrictions. The results of the analyses indicate that a $40,000 per-farm cap on crop insurance subsidies would have resulted in $2.02 billion in savings (approximately 42 percent of all premium subsidy outlays) in 2014. However, the $40,000 cap would affect less than 5 percent of all farms. Also, a lower $30,000 cap on premium subsidies would have saved $2.51 billion, and a less stringent $50,000 cap would have saved $1.74 billion in taxpayer outlays.
Meanwhile, a $125,000 cap on per-farm ARC and PLC payments would affect 17.2 percent of enrolled farms, the majority of which fall in the top 10 percent of crop sales. Total savings would have been approximately $70 million. A $250,000 cap on per-farm ARC, PLC, and crop insurance subsidy payments would result in $273 million in savings, of which 67 percent would come from farms in the top 1 percent of the crop sales distribution. Finally, a $125,000 cap on per-farm ARC, PLC, and crop insurance subsidy payments would affect only 3 percent of farms in the 50th to 90th decile of the crop sales distribution. Lower payments to farms in the top 10 percent of crop sales would result in savings of nearly $650 million, which represents 97 percent of the overall $670 million savings from the $125,000 cap.
Who receives what benefits from farm subsidy programs has been a focus of economics research throughout the evolution of US agricultural policy. The issue is politically controversial. However, economists have continued to examine the issue on an evidence basis, in part in response to D. Gale Johnson’s call in the early 1970s that “any governmental program that involves substantial expenditures by taxpayers and consumers should be periodically evaluated.”1 In the mid- and late-2000s, the findings from these evidence-based analyses led to widespread criticisms of many agricultural support programs—including the Direct Payments (DP), Countercyclical Payment (CCP), Average Crop Revenue Election (ACRE), and Supplemental Revenue Assurance (SURE) programs— by economists, policymakers, and the media.2
The 2014 Farm Bill (the 2014 Agriculture Act) terminated the DP, CCP, ACRE, and SURE programs. However, the 2014 Farm Bill replaced CCP and ACRE with two new initiatives, the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs. Together with the federally subsidized crop insurance program—a new Stacked Income Protection Plan (STAX) for cotton and a new Dairy Margin Protection Program—ARC and PLC comprise what is widely described as the current farm safety net. Federal expenditures on ARC, PLC, and the federal crop insurance program are estimated to have averaged $12–$14 billion per year since 2014 and are expected to be similarly funded between 2018 and 2027.3 Further, those subsidies are targeted mainly to producers of program crops.4 However, the Congressional Budget Office has also estimated that between 2017 and 2027, more than 70 percent of ARC, PLC, and crop insurance payments will flow to producers of just three crops: corn, soybeans, and wheat.5
In light of the substantial estimated public expenditures on these new agricultural support programs, this study also follows Johnson’s call to evaluate the economic equity of the 2014 Farm Bill safety-net programs.6 We use farm-level data from the Agricultural Resource Management Survey (ARMS) to estimate distributions of subsidy payments by size of farm as measured by crop sales, and then we use these estimates to examine potential benefit-cost trade-offs for agricultural producers and taxpayers resulting from changes to the structure of current safety-net programs. We estimate that in 2014 and 2015, approximately 60 percent of total crop insurance subsidies and ARC and PLC government subsidies were paid to producers in the highest 10 percent of the crop sales distribution. Further, farm businesses in the top 5 percent of crop sales received nearly 40 percent of all program payments, but more than 50 percent of farms in the lower 70 percent of the crop sales distribution received no subsidy or program payments. Further, the results indicate that more stringent restrictions on existing agricultural programs and crop insurance subsidies considered here would affect only farm businesses in the top 5–7 percent of the crop sales distribution but would likely result in a 30–40 percent reduction in public expenditures.
1. D. Gale Johnson, Farm Commodity Programs: An Opportunity for Change (Washington, DC: American Enterprise Institute, 1973), 21.
2. John Antle and Laurie Houston, “A Regional Look at the Distribution of Farm Program Payments and How It May Change with a New Farm Bill,” Choices 28, no. 4 (2013), http://www.choicesmagazine.org/UserFiles/file/cmsarticle_339.pdf; and David Orden and Carl Zulauf, “Political Economy of the 2014 Farm Bill,” American Journal of Agricultural Economics 97, no. 5 (2015): 1298–311.
3. Congressional Budget Office, “CBO’s June 2017 Baseline for Farm Programs,” 2017, https://www.cbo.gov/sites/default/files/ recurringdata/51317-2017-06-usda.pdf.
4. Crops eligible for PLC and ARC payments include barley, chickpeas, corn, dry peas, grain sorghum, lentils, oats, peanuts, rice soybeans, wheat, and a wide range of minor oilseed crops including canola, crambe, flaxseed, mustard, rapeseed, safflower, sesame seeds, and sunflower. More than 130 crops are eligible for federal crop insurance subsidies. See Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Does Size Matter? Distribution of Crop Insurance Subsidies and Government Program Payments Across US Farms” (working paper, Montana State University Center for Regulation and Applied Economic Analysis, 2017), https://www.agri-pulse.com/ext/ resources/pdfs/Smith-distributions-paper-october-2017.pdf.
5. In 2017, corn, soybeans, and wheat together received $4.458 billion in crop insurance premium subsidies, 73 percent of the total amount of $6.07 billion in premium subsidies paid to all 130 or more crops in the program. In 2016, ARC and PLC payments for all crops amounted to $5.283 billion, of which corn ($3.752 billion), wheat ($756 billion), and soybeans ($328 billion) received 85 percent ($4.502 billion). Congressional Budget Office, “CBO’s June 2017 Baseline for Farm Programs.”
6. Johnson, Farm Commodity Programs.
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