Crop insurance premium support is size neutral. Every eligible farmer, large or small, who wants crop insurance, may purchase crop insurance. The premium support rates provided for a given plan of insurance are the same for every producer, large or small, and every crop. The primary benefit of crop insurance is reduction of farm financial risk, which is achieved by shifting a farmer’s income in good years (by paying a discounted premium) to income in bad years (by receiving an indemnity), and this benefit accrues to all farmers, large or small.
Reducing financial risk helps a farmer maintain, expand, and increase the efficiency of the farm, improves access to credit, increases investment in production assets and enables the farm to recover after disaster. These are benefits to farmers, both large and small, and to society.
In fact, the 2014 Farm Bill took steps to make crop insurance even more attractive to small farms, including organic operations and those run by new and beginning farmers.
It should be noted that every acre enrolled in crop insurance helps spread risk, which ultimately lowers premiums for all. Therefore, the involvement of larger, more efficient operations, helps bring down costs for smaller farms and keeps crop insurance affordable.
By reducing financial risks and facilitating investment, crop insurance may contribute to increasing farm size, but analysts have estimated the impact is quite small and dominated by other factors. For example, one study estimated that crop insurance’s risk reduction leads to a slight increase in crop specialization, which increases the acreage in a crop on a farm. A USDA study estimated that, by raising returns, crop insurance accounted for a one percent increase in cultivated cropland between 1998 and 2008 in North Dakota and South Dakota.
The major factor driving farm size is the farmer’s desire to increase income, which may be achieved by increasing farm size. The small effects of crop insurance support on farm size have been put in context in another recent and thorough USDA study of farm structure, which concluded that larger crop farms realize better financial performance than smaller farms, and the difference is not due to higher revenue, but due to lower production costs. Labor hours per acre decline sharply as acreage increases for crops like corn and soybeans. Wide-ranging technologies are the keys, enabling a single farmer to operate more acres and reduce the total amount of labor needed. The study concludes, “… larger farms utilize labor and capital more intensively, which provide them with the primary source of their financial advantage.”
The study identifies additional factors affecting farm size, including tax and regulatory policies, research programs, lending programs and farm commodity programs. The study also points out that many commodities that are not, or are minimally, covered by crop insurance, such as most livestock and many specialty crops, have experienced rates of increase in farm size similar to the major field crops. In short, crop insurance should not be viewed as a major factor in the rising average size of U.S. farms. Crop insurance is a valuable risk management tool for farms of all sizes and is a major force in supporting a growing and globally competitive U.S. agriculture where 96 percent of farms continue to be family farms.