The drought being experienced this year in most of the United States will have an impact on the cost of food in the not distant future. Farmers will have a difficult year, but how difficult? As it turns out, less than one might expect. Over the last decades there has been a significant increase in the use of crop insurance in the United States and an escalation of the subsidies received from the federal government to cover crop insurance premiums. In 2011, the federal government picked up 60% of crop insurance premiums. In fact, crop and revenue insurance now represents the primary federal support for farm income, paying $5.2 billion in direct payments to farmers and $7.4 billion in insurance premium subsidies.

Today’s market size post lists the number of acres of farmland covered by crop insurance in 1981 and 2011 as well as the total insured liability each year. The level of government subsidies for crop insurance has risen quite substantially over this period. Total premiums paid for crop insurance in 2011 were approximately $12.3 billion, of which the federal government picked up 60%, or $7.4 billion.

Our hope is that all those impacted by this drought are spared serious damage and that starvation in distant places of this ever more connected world does not rise as a result of crop shortfalls in the United States.

Geographic reference: United States
Year: 1981 and 2011
Market size: Acres: 45 million and 262 million respectively
Market size: Insured liability: $6 billion and $113 billion respectively
Source: Keith Collins and Harum Bulut, “Crop Insurance and the Future Farm Safety Net,” February 10, 2012, available online here and Andrew G. Simpson, “Cap on Subsidy of Crop Insurance Premium Would Save $1 Billion: GAO,” April 13, 2012, available online here.
Original source: FarmDocDaily, Insurance Journal, U.S. Department of Agriculture, and the U.S. Government Accounting Office.
Posted on August 1, 2012