The Center for Rural Affairs along with Mike Duffy, Professor Emeritus of Economics, Iowa State University, will release a report that explores the impact subsidized crop insurance places on land values.
Duffy’s research shows that subsidized crop insurance indeed has an impact on land values. He identifies a couple of ways the program impacts land values.
The first is subsidization of the insurance premium. Duffy points out that the premium farmers pay is not the actuarially sound premium. Rather, it is the premium minus a subsidy from the government. That premium subsidy is a benefit the farmer receives.
Second, crop insurance reduces the income risk associated with crop production, either through loss of revenue or crop failure. This risk reduction adds value because future returns are not as uncertain as they would be without crop insurance.
Duffy used data available from the USDA Risk Management Agency (RMA) to examine if federal crop insurance programs influence land values by the amount of the subsidy and the reduction in risk. The RMA provides detailed summaries of their business for the nation, by crop, by state, and by year going back to 1989. For this study, he used Iowa as the example.