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Adjusting Crop Insurance APH Calculation to Accommodate Biomass Production

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  • Dolginow, Joseph
  • Massey, Raymond
  • Myers, Brent
  • Kitchen, Newell
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    Abstract

    The United States federal government currently subsidizes crop insurance to provide a safety-net to insured farmers. Agricultural economists have debated indirect impacts of the subsidized crop insurance program on producer behavior. One of those debates surrounds the issue of extensiveness, or if crop insurance encourages the production of certain crops for which insurance is more readily available. The federal government is also fostering an emerging cellulosic bioenergy industry with subsidies for planting perennial grass crops like switchgrass and miscanthus. This article analyzes how the current method for calculating actual production history (APH) may deter producers from planting perennial grasses and penalizes those producers who convert some of their row crop land to perennial grasses. An alternative APH calculation method suggested here would continue to provide a safety-net to producers, reduce indemnity payments by insurance companies, and reduce an impediment to planting perennial grasses. The conclusions are based on a utility-maximizing stochastic budgeting model with actual grain yields and FAPRI baseline prices for a representative farm in northeastern Missouri.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 AAEA: Crop Insurance and the Farm Bill Symposium, October 8-9, Louisville, KY with number 156945.

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    Date of creation: Sep 2013
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    Handle: RePEc:ags:aaeaci:156945

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    Keywords: Crop Insurance; Bioenergy; Perennial Grasses; Agricultural and Food Policy; Crop Production/Industries; Resource /Energy Economics and Policy; D81; Q16; Q18; C15;

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    1. Joseph W. Glauber, 2013. "The Growth Of The Federal Crop Insurance Program, 1990--2011," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 482-488.
    2. Francis M. Epplin & Christopher D. Clark & Roland K. Roberts & Seonghuyk Hwang, 2007. "Challenges to the Development of a Dedicated Energy Crop," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1296-1302.
    3. Walters, Cory G. & Shumway, C. Richard & Chouinard, Hayley H. & Wandschneider, Philip R., 2012. "Crop Insurance, Land Allocation, and the Environment," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.
    4. Joshua D. Woodard & Alexander D. Pavlista & Gary D. Schnitkey & Paul A. Burgener & Kimberley A. Ward, 2012. "Government Insurance Program Design, Incentive Effects, and Technology Adoption: The Case of Skip-Row Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 823-837.
    5. JunJie Wu, 1999. "Crop Insurance, Acreage Decisions, and Nonpoint-Source Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 305-320.
    6. Barry K. Goodwin & Monte L. Vandeveer & John L. Deal, 2004. "An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1058-1077.
    7. Keith H. Coble & Barry J. Barnett, 2013. "Why Do We Subsidize Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 498-504.
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