Does subsidized crop insurance affect farm industry structure? Lessons from the U.S.

Farm policies have unintended consequences and subsidized crop insurance is no different. We draw on the theory of long-run competitive equilibrium to estimate the effect of subsidized crop insurance on farm output and number of farms in the U.S. Results show that the subsidy led to fewer and larger farms. To the extent that larger farms benefit disproportionately from other farm subsidies, known to increase farm size, subsidized crop insurance can only contribute to further farm consolidation, with consequences for sustainability and depopulation of rural communities. These unintended effects could make the case for reverting to ad-hoc disaster payment programs.