The Impact of Subsidized Insurance on Farm Financial Risk

The Impact of Subsidized Insurance on Farm Financial Risk: Global Lessons from Agricultural Policy in the United States

On February 7, 2014 President Barack Obama signed the Agricultural Act of 2014 into law. The Act, in many ways, represents a new era in agricultural policy in the United States: one of the key changes is that it eliminates the direct payments program in favour of publicly subsidized insurance products. In the future, subsidized insurance is likely to become the dominant agricultural policy in many areas of the developed and developing world, and the lessons provided by the American experience may provide valuable information for policy makers and academics around the globe.

This seminar will highlight many of the key findings of Dr. Kuethe’s research on the impacts of agricultural insurance programs. By mitigating downside economic risk, subsidized insurance allows farmers to engage in riskier financial activities. Dr. Kuethe’s work demonstrates that farmers who adopt subsidized insurance are likely to increase short-term debt and have a higher default risk. Another way farmers offset the reduced financial risk is to adopt rental arrangements that shift financial risk away from the landlord and to the farmer tenant (from traditional share-lease agreements to cash rent agreements). Finally, there is evidence that the risk mitigating benefits are capitalized into underlying farmland values.

Speaker: Dr Todd Kuethe, Clinical Assistant Professor, Department of Agricultural and Consumer Economics, University of Illinois

Chair: Prof. Charles Godfray

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