Untangling the Farm Safety Net
A framework for federal farm aid
There’s a feeling I get when I sit down to play a new board game. I nod my head as a more experienced player explains the rules and how all the pieces work. Yeah, yeah, roll the dice, draw the cards, got it. But when the game begins and it’s my turn, I am lost. I drew the cards. Now, what does this one do again?
This is how I feel whenever the farm safety net comes up in conversation. Yeah, yeah, subsidized crop insurance, disaster aid, got it. But whenever farm news mentions “base acres,” or “reference prices,” I am lost. What do each of these do again?
As many farmers are currently harvesting crops that they are projected to lose money on, and rumors are circulating of a multibillion-dollar farmer aid package, I wanted to actually understand the farm safety net. While we will focus on the American-flavored version, governments across the globe use similar policies to bolster their farmers and agricultural economies.
Over the past 100 years, the farm safety net, although imperfect, has succeeded in keeping more farms afloat than otherwise would have without it. As the next US Farm Bill which authorizes these programs is being actively debated, it’s important that the farm safety net evolves to address farmers’ current challenges and maintain America’s agricultural productive capacity.
The alphabet soup of the federal farm safety net
Think of the federal farm safety net as policies and programs woven together to help farmers across the country contend with poor yields, low prices, or natural disasters.
The US Department of Agriculture (USDA) is home to the agencies that administer farm safety net programs. There are two main pillars of the farm safety net – crop insurance and commodity programs – plus one secret menu item (direct farm payments).
Crop insurance
Most people understand insurance. Maybe not the nitty-gritty details, but the big idea. Take car insurance, for example. Drivers pay money each year in case something bad happens, like an accident. If a driver gets into a fender bender, the insurance company pays money to the driver to help them fix or replace their car.
On farms, a lot of bad things can happen. Drought, severe weather, tanking commodity prices, a disease outbreak – any one of these can spell disaster. A single bad year can put a farm out of business, since farms operate on razor-thin margins even in the best of times. Crop insurance is one tool that farmers use to manage that risk.
Farms that grow and sell commodities earn money based on crop yield multiplied by market price. Crop insurance policies protect against either low yield or low revenue (yield times price). Most policies are “multi-peril” because they cover multiple risks (like the factors that influence global commodity prices or yield), instead of covering a single risk, like drought. Farms enroll in policies based on either their own individual farm’s historical performance or the performance of their surrounding area (like the county yield or revenue).
Crop insurance is administered through a public-private partnership. On the public side, the Risk Management Agency (RMA) manages the Federal Crop Insurance Corporation (FCIC), a government-owned public corporation. The FCIC works with roughly a dozen privately-owned companies, called Approved Insurance Providers (AIPs), that employ thousands of crop insurance agents who sell to farmers.
There are three notable things about US federal crop insurance. First, unlike your car insurance, the government subsidizes premiums (the fee paid for farmers’ coverage). Farmers pay an administrative fee and about 40% of the premiums, with the federal government picking up the remaining tab.
Second, the same level of coverage costs the same regardless of the insurance provider selling the policy. Whether a farmer buys from an agent next door or another agent a county over, the cost is the same. So, instead of competing on price, crop insurance agents compete based on their relationship with the farmer and the quality of the service provided.
Third, the vast majority of farmed acres in the country are covered by some level of crop insurance. As of 2025, over 100 different crops are covered across 543 million acres. Nearly 90% of commodity row crop acres (like corn, soybeans, wheat, and cotton) are insured. Coverage is lower for fruits and nuts (74% of acres) and vegetables (34% of acres), but is growing.
As of 2024, the federal crop insurance program costs about $14 billion each year to operate, with 70% going towards premium subsidies. The program is “actuarially sound,” meaning that more money comes in (premiums) than is paid out (indemnities).
The chart below shows the actual amount paid out since 1990, with “drought and high temperature” being a leading cause in recent years:
Commodity programs
Farmers who grow commodity row crops, like corn, soybeans, wheat, and cotton, are eligible to participate in commodity programs that payout when prices or yields fall below certain thresholds. There are two main options that farmers can select from:
Agricultural Risk Coverage (ARC): Payment is triggered when the actual revenue in a given year drops below the “benchmark revenue.” The benchmark revenue is the average price multiplied by average yield, where the averages are calculated based on the past 5 years with the highest and lowest years removed. Farmers typically enroll in ARC using county-level averages, though an individual farm-level option is available.
Price Loss Coverage (PLC): Legislators set national “reference prices” for each commodity (for example, the reference price for corn is currently $4.10). Payment is triggered if the actual price in a given year dips below either the reference price, or below 88% of the average previous 5 years of prices (with the highest and lowest prices removed).
Farmers enroll in commodity programs through one of the 2,300 local Farm Services Agency (FSA) offices across the country. It is free to participate in commodity programs, and payments can be up to $125,000 per person, per year. Commodity programs are paid out through the Commodity Credit Corporation (CCC), another government-owned public corporation. The total amount that the federal government spends on commodity programs varies by year, but averaged about $6 billion per year from 2018 to 2021.
Instead of being paid out on actual planted acres in a given year, like crop insurance, commodity programs are paid out depending on “base acres.” The FSA allocates a certain number of base acres of an eligible crop to specific parcels of land, based on historical averages going as far back as the 1980s. This year, 243 million base acres were enrolled in either ARC or PLC.
Farmers with eligible crops can, and often do, enroll in both commodity programs and crop insurance. This can result in some odd, but perfectly legal, situations. For example, a farmer may have a field that has eligible corn base acres that he enrolls in either ARC or PLC. He may have planted corn last year on that field, but to maintain a healthy crop rotation, he plants soybeans this year. He enrolls his planted acres of soybeans in federally subsidized crop insurance. Depending on how corn prices or county-level revenues shake out, he may receive a check for his corn base acres, without planting a single kernel of corn this year. This is in addition to any crop insurance indemnities on his soybean crop (if triggered).
Commodity programs are one instance where the farm safety net cushions some farmers more than others. Specialty crops, like fruits, vegetables, and tree nuts, are not eligible for commodity programs. Only row crops, which are primarily used for biofuels and livestock feed, are eligible. If a farmer does plant more than 15% of their base acres with fruits or vegetables, they lose out on payments that year.
The hidden “third pillar” of direct payments
There is a less obvious “third pillar” of the farm safety net: direct farm payments.
These direct payments are not necessarily planned in advance (they are “ad hoc”). Cash is more likely to be distributed in years that farm income is low, and is often in response to extreme weather-related disasters. Recently, there has been a steep increase in the amount of direct payments per year. When farmers were buffeted by the US-China trade war in 2018 and 2019, farmers received $24 billion in direct payments. In 2020, when the pandemic struck, farmers were thrown another $23.5 billion lifeline. Currently, another $10 billion is expected to be announced, again in response to trade woes.
Direct payments are in addition to crop insurance and commodity programs. In fact, farmers must purchase crop insurance to be eligible for most direct payments.
Since 1998, more than $148 billion has been distributed, compared to $192 billion of commodity program payments and $89 billion of crop insurance indemnities for the same time period. The fact that this represents over a third of the total payments to farmers is a clear indicator that direct payments are an increasingly important thread of the farm safety net.
How we got here
If you were a superintelligent AI tasked with designing a perfect set of policies and programs from scratch to efficiently use taxpayer dollars to maximize production of nutritious, safe, affordable food while supporting rural communities and protecting the environment – the current US farm safety net is probably not what you’d design.
But if you can tease apart the warp and weft of the agricultural economy over the past century, the current farm safety net makes a lot more sense. The farm safety net that we know today has been crafted over the past 9 decades through 18 different Farm Bills to support farm income. Three events in particular shaped the farm safety net.
The Great Depression lasted more than a decade from 1929 to 1941. High rates of poverty and unemployment lowered demand for farm goods, dragging down commodity prices. As a double whammy, farmers were still paying back the loans they took out the prior decade to farm more land to meet the demand of World War I. Farm bankruptcies during this time more than tripled.
To make matters worse, the Dust Bowl also hammered farmers throughout the American Great Plains in the 1930s. The first Farm Bill was passed in 1933 and shortly thereafter, the US government introduced the first national crop insurance program in 1938 to help farmers recover from these twin disasters.
Fast forward forty years. The 1980s farm crisis devastated many farms and rural communities. In the 1970s, US farm productivity exploded as new technologies vastly increased the yield of each acre, and farmers were encouraged to plant “fencerow to fencerow.” Poor harvests abroad drove up prices in the 1970s, and inflation was rampant. Farmers borrowed to keep up with the demand. As interest rates rose to a high of 21.5% in 1981 and lending rules tightened, farmers, and especially those with any debt, were hit hard. By 1987, a new annual high of 1 in every 500 farms declared bankruptcy.
In response, Congress encouraged more farmers to participate in crop insurance by increasing availability to more crops and regions and paying part of the premiums. The first billion-dollar ad hoc disaster payments were also introduced in the late 1980s.
The most recent Farm Bill was passed in 2018. Now, farmers are waiting expectantly for the next Farm Bill, after more than a two-year delay, to address the challenges of today.
Has the farm safety net worked?
As the saying goes, “farms are the only businesses that buy retail but sell wholesale.” Farming is inherently a high-risk, low-margin endeavor. A farm’s multi-generational, centuries-long legacy can be broken by a single bad year. This is a real concern that many farmers face and should be taken very seriously.
Even if one cannot find it in their cold little hearts to sympathize with farmers, there is still a case that a functioning agricultural system is important to the national interest. Not just to “feed ourselves” (much of what the farm safety net supports goes to exports, livestock feed, or biofuels), but because this productive capacity, once lost, will be extraordinarily difficult to bring back.
Consider everything it takes to harvest an acre of land: the land itself, ideally with healthy soil and plentiful water, the equipment and inputs, the infrastructure to store and ship each bushel, and of course, the people with the knowledge, skill, and wherewithal to actually work the land. In essence, the farm safety net is valuable to maintain that productive capacity, and does a better job supporting some of those pieces than others.
There are many valid critiques of the farm safety net. It’s expensive – tens of billions of dollars a year. It’s not fair that some farmers, crops, and regions benefit more than others. It may influence farmers to take risks they otherwise wouldn’t. It gives input companies and landlords yet another reason to keep prices and rents high, squeezing farmers’ profit margins. And, it chafes against the image of the American farmer as an independent, rugged individual striving valiantly in a free market. A farmer quoted recently in the Wall Street Journal sums it up, “We don’t like to get government handouts, but we don’t like to go broke either.”
In many ways, the farm safety net has achieved its goals. The number of farm bankruptcies in the 1980s was in the thousands, with a peak of 4,812 farmers filing for bankruptcy in 1987; more recently, there were 216 bankruptcies in 2024. More farms have been able to weather hard times and are still operating today. Even if consolidation has been increasing among farms, it’s likely that there would be even more consolidation had the farm safety net not been in place.
The work is not done. The farm safety net that has gotten many farms from the 1930s through the 1980s, all the way to 2025, will need to evolve. Today, many farmers (unless you raise cattle) are facing the worst economy of their lives. Two long-term shifts in particular are reshaping the status quo, and the farm safety net must adapt to this new reality.
Farmers are unfortunately victims of their own astonishing productivity; there is oversupply and thus cripplingly weak prices for many commodities that dominate US farmed acreage. An increase in yield per acre is ultimately a good thing for efficiency, but a challenge to contend with for the farmers who face the resulting low prices.
A reshuffling of global trade will continue with fewer export opportunities to drive demand. China is an example of a previous buyer that is likely not coming back for US farm products, or certainly not to the same pre-trade-war levels. The demand that does exist for crops like soybeans and corn is frequently being met by rising agricultural powerhouses, like Brazil.
Given all that, what should a farm safety net look like in 2025? How might it support farmers, mitigate risk, and ensure a productive future for American agriculture?
I’d love to hear your ideas in the comments below.
Topsoil is handcrafted just for you by Ariel Patton. Complete sources can be found here. All views expressed and any errors in this newsletter are my own. Thanks to Mike Riggs, Allison Lehman, Hiya Jain, Tim Durham, Colleen Smith, Smrithi Sunil, and Karthik Tadepalli for feedback and discussion on this edition.
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Well done! Farm Aid Festival has been running 40 years. What impact or distortion do charity orgs like this have on farmers and farm policy (bills)?
Another well written explainer - thank you Ariel!