Introduction:
Federal crop insurance was first introduced in the early 1930s to help producers recover from the Great Depression and the Dust Bowl (“History of the Crop Insurance Program”). The now program covers millions of farm acres and has become the largest single farm commodity program in the farm bill. It is a major part of the farm bill and can influence the commodity markets of the United States.
Policy Discussion: The federal crop insurance program was created to lower the risk of being a producer. Without crop insurance a producer is liable to natural disasters and market instability, but with crop insurance producers are guaranteed up to a certain percentage of their crop’s value depending on what kind of coverage they bought. …show more content…
The crop insurance program is not made to increase demand or supply, but to help reduce risk for producers. Producers face uncertainty in both supply and demand as they are both susceptible to random shifts. Graph 1 shows how the supply and demand changes according to these random shifts. At S0 and D0 the market has not faced any random shifts and both demand and supply are expected. The market is in equilibrium at price P0 and quantity Q0. If there are above average conditions for supply (good rainfall, no disease, low pest, etc.) then the supply curve shifts to the right to SA. If there are also above average conditions for demand (high substitute price, economic growth, etc.) then the demand curve will shift to the right to DA. The equilibrium price and quantity for this market will be set at price P¬0 and quantity QH. With above average conditions for supply, the supply curve will shift to the right to SA. With below average condition for demand (economic recession, low substitute price, etc.) the demand curve will shift to the left to DB. The equilibrium price and quantity for this market will be set at price PL and quantity Q0. If there are below average conditions for supply, SB, and above average conditions for demand, DA, then the supply curve will shift to the left and the demand curve will shift to the right. This market will be in equilibrium at price PH and quantity Q0. If there are below average conditions for supply, SB, and below average conditions for demand, DB, then both curves will shift to the left. This market will in equilibrium at price P0 and quantity QL. Crop insurance may increase supply due the moral hazard of insurance and producers being unafraid to produce more. It would be hard to see as the market is unstable and shifts randomly. The only noticeable effects are an increase in government cost and a decrease in net society. Producers gain while
Federal crop insurance was first introduced in the early 1930s to help producers recover from the Great Depression and the Dust Bowl (“History of the Crop Insurance Program”). The now program covers millions of farm acres and has become the largest single farm commodity program in the farm bill. It is a major part of the farm bill and can influence the commodity markets of the United States.
Policy Discussion: The federal crop insurance program was created to lower the risk of being a producer. Without crop insurance a producer is liable to natural disasters and market instability, but with crop insurance producers are guaranteed up to a certain percentage of their crop’s value depending on what kind of coverage they bought. …show more content…
The crop insurance program is not made to increase demand or supply, but to help reduce risk for producers. Producers face uncertainty in both supply and demand as they are both susceptible to random shifts. Graph 1 shows how the supply and demand changes according to these random shifts. At S0 and D0 the market has not faced any random shifts and both demand and supply are expected. The market is in equilibrium at price P0 and quantity Q0. If there are above average conditions for supply (good rainfall, no disease, low pest, etc.) then the supply curve shifts to the right to SA. If there are also above average conditions for demand (high substitute price, economic growth, etc.) then the demand curve will shift to the right to DA. The equilibrium price and quantity for this market will be set at price P¬0 and quantity QH. With above average conditions for supply, the supply curve will shift to the right to SA. With below average condition for demand (economic recession, low substitute price, etc.) the demand curve will shift to the left to DB. The equilibrium price and quantity for this market will be set at price PL and quantity Q0. If there are below average conditions for supply, SB, and above average conditions for demand, DA, then the supply curve will shift to the left and the demand curve will shift to the right. This market will be in equilibrium at price PH and quantity Q0. If there are below average conditions for supply, SB, and below average conditions for demand, DB, then both curves will shift to the left. This market will in equilibrium at price P0 and quantity QL. Crop insurance may increase supply due the moral hazard of insurance and producers being unafraid to produce more. It would be hard to see as the market is unstable and shifts randomly. The only noticeable effects are an increase in government cost and a decrease in net society. Producers gain while