Risk Management and the Precision Agriculture and Conservation Tillage Tax Credit: Evidence from Virginia

Precision agriculture (PA) and conservation tillage (CT) are promoted as risk-reducing innovations that can stabilize yields, improve input efficiency, and enhance environmental performance. Yet, if these technologies reduce production risk, they may also change farmers’ demand for federally subsidized crop insurance—an underexplored policy interaction. This study evaluates whether Virginia’s Conservation Tillage and Precision Agriculture Equipment Tax Credit—a refundable state income tax credit that subsidizes eligible PA and CT equipment purchases—affects crop insurance coverage choices for corn producers. Leveraging the tax credit as a natural experiment, we assemble a county-by-year panel combining USDA Summary of Business (SoB) crop insurance outcomes with Risk Management Agency (RMA) measures of premiums, liability, and yields over 1999–2023. We estimate a difference-in-differences model with county and year fixed effects, using an acres-weighted effective coverage rate as the primary outcome and controlling for planted area and lagged yields. Results indicate that the tax credit is associated with a statistically meaningful decline in effective coverage—approximately a 0.019-unit reduction—consistent with farmers lowering coverage after adopting risk-mitigating technologies. Findings are robust across alternative specifications and are not sensitive to statespecific time trends. Overall, the evidence suggests that state incentives for PA/CT adoption can generate spillovers into the federal crop insurance program, with potential implications for producer risk-management strategies, insurance pricing, and the public cost of premium subsidies. Keywords: precision agriculture, conservation tillage, tax credits, crop insurance, difference-in-differences, risk management.