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EXECUTIVE SUMMARY: INTRODUCTION
Crop insurance has become an important tool for managing economic and environmental
risk in the agricultural sector, and one of the largest sources of Federal subsidies
to agricultural producers. This research examines the near- and long-term risks to
agricultural producers, and seeks to identify and evaluate potential policy opportunities
within the federal crop insurance program to improve the climate adaptation capacity
of insured farms. The crop insurance program contains several structural barriers
to sustainable, adaptive management practices, including a lack of soil and water
conservation requirements common to other farm support programs (remedied in the Agricultural
Act of 2014), and stringent planting date requirements which discourage farmers from
using cover crops to protect their soil from erosion and enhance fertility, as well
as diversify their farms (both economically and biologically) and increase climate
resiliency.
POLICY RECOMMENDATIONS
1. Reinstate conservation compliance requirements for eligibility to receive federal
subsidies towards crop insurance coverage (successfully passed in the Agricultural
Act of 2014).
2. Provide farmers who plant cover crops with an additional “buffer” period after
their policy’s final planting date to allow appropriate termination of the cover crop
without jeopardizing the insurance coverage on their primary crop.
ANALYSIS & METHODS
To evaluate the economic impacts of requiring conservation compliance for eligibility
to receive crop insurance subsidies, I constructed a cost benefit analysis at the
national scale, including cash flows for the economy as a whole, the government, and
affected farmers. My analysis focuses on the marginal impact of the program, quantifying
only the marginal costs and benefits of implementing the program on farms which are
not currently participating in any other Farm Bill programs requiring conservation
compliance, and which will be coming under the compliance requirement for the first
time due to their use of subsidized crop insurance. This eliminates all farms which
would be subject to the requirement whether or not it was added to the crop insurance
program, and thus more accurately quantifies the impact of the policy change within
the context of other interrelated farm support programs.
Due to the lack of data from the field regarding the dynamics of planting date restrictions
and cover cropping decisions, I could not construct a national-scale cost benefit
analysis to evaluate my second policy recommendation. I instead created a farm-scale
cost benefit model to compare the performance of a commodity mono-crop with a dual,
cover crop and commodity crop system. The model takes into account the unique economic,
social, and biological attributes of the farm using yield, acreage, crop selection,
planting dates, management practices, and insurance parameters to produce estimates
of the costs and benefits at the farm level.
RESULTS
The results of my analysis show that conservation compliance, even under the most
conservative scenario, provides a net benefit to farmers and to the economy as a whole
for a comparatively modest initial investment on the part of farmers and the government.
In my moderately conservative cost benefit analysis scenario, reinstating the conservation
compliance requirements in association with crop insurance provides an incremental
net benefit of at least $4,411 per acre in present value terms, with over $780 per
acre of those benefits accruing to the farmer.
The cover crop analysis did not provide any generalizable results, however it does
suggest that a buffer period within the planting date restrictions for farmers growing
cover crops may help mitigate the risk of cover crops interfering with the profitability
of farmers’ primary commodity crop, and thus remove one of the barriers to adoption.
I recommend a pilot test of this policy change, with rigorous measurement and evaluation
of the impacts on farm revenue, insurance and subsidy payments, and environmental
outcomes.
CONCLUSIONS
With impending near- and long-term threats of climate change, the crop insurance program
should balance the need for rigid management requirements to ensure an appropriate
baseline level of risk mitigation and management with the flexibility to allow farmers
to experiment with new management practices to find what works best in their new climate
context. The benefits of the conservation compliance requirement vastly outweigh the
costs, and provide a cost-effective mechanism for improving adaptive capacity on already
vulnerable agricultural lands. While the planting date buffer period is a promising
mechanism for increasing the use of cover crops and improving farmers’ capacity to
develop new adaptive risk management strategies at the local level, additional research
and field testing is needed to determine the impact of relaxing the constraint on
actual adoption rates in the field.
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