Addressing Risk in Agriculture

Agricultural producers, similar to other businesses, face significant risk. The United States Department of Agriculture’s (USDA) Economic Research Service identifies five different types of farming risk: human and personal risk (such as human health), institutional risk (regarding governmental action), financial risk (such as access to capital), price or market risk, and production risk (such as weather and pests). Of these, policymakers usually focus on the last two types.

Unlike most other businesses, however, federal government programs assist agricultural producers in protecting against risk. In analyzing these subsidies, often referred to as the federal “safety net,” key foundational questions had to be asked: Is there something about agricultural risk that makes private risk management insufficient? Why would government intervention in risk management be appropriate for agricultural producers but not for other businesses?

This Special Report provides an in-depth analysis of these and other questions regarding agricultural risk and examines the federal programs that make up the taxpayer-funded safety net: commodity programs and federally subsidized crop insurance. It also provides detailed and concrete policy recommendations. Ultimately, the purpose of this report is to instigate a discussion about the reforms necessary to free the agricultural sector from harmful government intervention.

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