Crop Insurance

The Farm Bill version reported by the House Agricultural Committee would modify Supple-mental Coverage Option (SCO), a crop insurance policy that provides county-level coverage. Be-cause the modifications proposed for SCO would make it very similar to the STAX insurance pro-gram for cotton, we evaluate the historical performance of STAX to provide indications of how modified SCO could operate.

Both the House and Senate versions of the farm bill include proposals to modify Supplemental Coverage Option (SCO) insurance. SCO crop insurance provides county-level coverage from the selected coverage level on a farm-level crop insurance product up to a fixed maximum coverage level based on county-level results. This article examines the impacts of the SCO version proposed by the House for corn in McLean County, Illinois. Overall, increasing SCO subsidy levels seems questionable as a policy objective. At best, farmers risk management is improved marginally at high costs to the Federal government. A better focus would be on enhancing the protection of the underlying farm-level product.

Given the site specificity of crop production, adverse selection is a key crop insurance issue. Consistent with this issue, US public policy subsidizes premiums for the more aggregated enterprise and whole farm insurance units at higher rates than the less aggregated basic and optional insurance units. Nevertheless, the data and discussion in this study prompt a policy question, “Why aren’t premium subsidy rates more graduated across insurance units to reflect potential adverse selection?”