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Policing Crop Politics

Any driver knows that if you make a habit of rolling through stop signs and careening down the highway, pretty soon the points on your driver’s license will send the cost of your insurance through the roof. That’s because, according to your pattern of behavior, you’re statistically more likely than other drivers to cause an accident and need an expensive insurance payout.

Jeffrey LaFrance, professor of agricultural and resource economics and policy, thinks similar logic should apply to crop insurance—policies that can guarantee farmers a certain income even in the case of crop failure. Unfortunately for tax payers, that’s not the case. LaFrance evaluates policies for the USDA’s Federal Crop Insurance Corporation, and he doesn’t have kind words for many of the proposals that come across his desk. “I sometimes use words like ‘ridiculous,’ ‘egregious,’ ‘terrible,’ and ‘awful’,” LaFrance says, describing his reports.

Crop insurance is a big issue, thanks in part to the Agricultural Risk Protection Act of 2000. That law mandates government-subsidized insurance products for nearly every variety of U.S. crop. All this subsidized insurance is expensive—for every dollar that a farmer pays in premiums, American taxpayers end up paying $2.40 in premium subsidies, payments to insured farmers claiming losses, and subsidies to insurance companies to sell and reinsure these products.

LaFrance’s work is controversial and often poorly received by peers at land grant universities, some of whom make a tidy sum developing for insurance companies the very policies he reviews for the federal government. (To avoid a possible conflict of interest, he never develops insurance policies of his own.)

LaFrance says a reasonable insurance product should be statistically sound, based on individual behavior (like points on a driver’s license) and observed risks (like an SUV’s tendency to roll over). But because subsidized insurance policies rely on taxpayer money, neither policyholders nor insurance companies internalize the risks of agricultural production. Compounding this basic flaw is the fact that badly designed policies encourage risky farming practices (for example, gambling on unreliable crops or cultivating a steep grade) and can be an open invitation to fraud. If a crop is on track to make a small profit, but the farmer’s insurance guarantees an even larger return, why would the farmer invest in fertilizer and water rather than let the crop fail?

“The thing is, insurance doesn’t need to be subsidized by the government,” says LaFrance. “It’s a system that works best when premiums correlate to risks.” For now, he works diligently to stop the most wasteful policies. “I’ve stopped a few really bad projects,” he says. “At the end of the day, my goal is to keep the costs of the federal crop insurance program as low as I can.”

-Catherine Price and Cyril Manning

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