Crop Insurance and the New Deal Roots of Agricultural Financialization in the United States

Abstract

A range of private and public institutions emerged in the United States in the years before and after the Great Depression to help farmers confront the inherent uncertainty of agricultural production and marketing. This included a government-owned and operated insurance enterprise offering “all-risk” coverage to American farmers beginning in 1938. Crop insurance, initially developed as a social insurance program, was beset by pervasive problems of adverse selection and moral hazard. As managers and policy makers responded to those problems from the 1940s on, they reshaped federal crop insurance in ways that increasingly made the scheme a lever of financialization, a means of disciplining individual farmers to think of farming in abstract terms of risk management. Crop insurance became intertwined with important changes in the economic context of agriculture by the 1960s, including the emergence of the “technological treadmill,” permanently embedding financialized risk management into the political economy of American agriculture.

Removing Barriers and Creating Opportunities for Climate-Resilient Agriculture by Optimizing Federal Crop Insurance

“…Our recommendations focus on the semi-arid Northern Great Plains due to compelling evidence of the benefits of conservation agriculture in this region and the historical practice of the USDA to implement reforms to FCIP after testing in a localized region (Hamilton 2020). This area frequently experiences drought and extreme temperatures, making it prone to FCIP payouts (U.S. Government Accountability Office 2015).…”

“…As climate change threatens agriculture and amplifies financial burdens on farmers and taxpayers, urgent modifications to FCIP and USDA research funding that promote nature-based solutions are imperative. We suggest this be implemented as a pilot program due to the precedent that the USDA uses pilots to trial reform measures (Hamilton 2020).…”

“…Phase out single-crop, yield-based coverage and incentivize whole farm insurance Most FCIP products insure individual crops based on yield history rather than farm income (Hamilton 2020). The emphasis on yield and penalty 3 for any management that may compromise yield in the shortterm, such as cover or continuous cropping, has led farmers to focus on a few high-value, high-yield crops that rely on high levels of inputs (e.g., fertilizers and herbicides) at the expense of long-term soil health and resiliency (Hamilton 2020). Additionally, the current structure of FCIP may discourage planning for extreme events, such as increased frequency and duration of drought and elevated temperatures.…”

“…A study found insured corn was 67% more prone to extreme heat than uninsured corn (Annan and Schlenker 2015), suggesting that uninsured farms were more proactive in protecting against this common cause of crop loss, for example by planting at a crop density likely to provide a yield even under hot, dry conditions. Rather than insuring single crops based on yield, an alternative is to insure farm revenue, thus removing the emphasis on particular practices or crops while still protecting farms against devastating losses (Hamilton 2020).…”

“…Alone, each recommended policy change is an improvement over the status quo but will not achieve the goal of creating climate-resilient farms. We propose three changes as key elements of a pilot program in keeping with USDA tradition (Hamilton 2020) so they can be ground-tested, modified, and scaled effectively. Together, these changes address bureaucratic obstacles, provide a range of short-and long-term solutions, and promote economic and agricultural sustainability (Fig.…”