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Analyzing Federal Farm Program and Crop Insurance Options to Assess Policy Design and Risk Management Implications for Crop Producers

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  • Lubben, Bradley
  • Stockton, Matthew
  • Protopop, Iuliia
  • Jansen, Jim
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    Abstract

    Recent changes in federal farm programs and contemporary farm program proposals highlight an evolving shift in farm policy from income support to risk management. A mix of price- and revenue-based commodity programs as well as yield- and revenue-based insurance products provide crop producers a complex portfolio of risk management tools and choices. To make effective risk management decisions, crop producers must integrate farm programs and crop insurance alternatives in a comprehensive risk management decision-making framework. This work assesses the risk management performance and complementarity or substitutability of farm program and crop insurance options. A novel representative farm model for Nebraska is used that incorporates national, state, district, county, and farm-level yield variables along with national and state-level price variables to accurately assess multiple farm program and crop insurance alternatives. The four-stage simulation model simultaneously estimates all necessary yield and price variables in a statistically-distributed and correlated framework. This allows for a consistent and complete analysis of alternative farm program and crop insurance choices and designs. The simulation produces crop revenue, farm program, and crop insurance results for eight representative farms indicative of the crop mix and productivity levels in each of the eight agricultural statistics districts in Nebraska. The results demonstrate the risk management performance of alternative farm program and crop insurance choices for the eight representative farms in Nebraska. The analysis demonstrates the complementarity of farm programs with some crop insurance products and protection levels while showing potential substitutability or overlap with other products and protection levels. The results provide insight for more effective policy design, farm program participation, and farm-level risk management decision-making.

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    File URL: http://purl.umn.edu/157827
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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 157827.

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    Date of creation: 08 Oct 2013
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    Handle: RePEc:ags:aaeaci:157827

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    Keywords: farm bill; farm programs; crop insurance; risk management; Agricultural and Food Policy; Farm Management; Risk and Uncertainty;

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    1. Lubben, Bradley D. & Novak, James L., 2010. "Discussion: What Have We Learned from the New Suite of Risk Management Programs of the Food, Conservation, and Energy Act of 2008?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(03), August.
    2. Jansen, Jim A. & Stockton, Matthew C. & Lubben, Bradley D., 2012. "Modeling Correlated and Disaggregated Crop Revenue Distributions: Implications under Mixed Policy and Program Initiatives," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124688, Agricultural and Applied Economics Association.
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