IDEAS home Printed from https://ideas.repec.org/p/ags/iaae06/25421.html
   My bibliography  Save this paper

Evaluating the Potential of Whole-Farm Insurance Over Crop-Specific Insurance Policies

Author

Listed:
  • Bielza, Maria
  • Garrido, Alberto

Abstract

Since 1996, different formats of whole-farm insurance (WFI) have been launched in North America and Spain. Their rationale is to pool all farm's insurable risks into a single policy that provides cheaper coverage against the farm's revenue losses. We evaluate the gains of moving from a situation of full insurance coverage delivered by crop-specific policies to WFI. Based on the records of individual farmers gathered by the Spanish Agricultural Insurance Agency (ENESA), we select two representative farms in Valencia that have consistently purchased insurance during 1993-2004 for three crops (apricots, plums and wine grapes). WFI is designed to deliver exactly the same expected revenue than does the combined effects of three crop-specific multiple-peril insurance policies, covering from the same risks. We carry out Monte-Carlo simulations to compare crop-specific insurance with WFI, looking at premium differences, farms' revenues, and farmers' utilities (DARACRRA). From ENESA's database we evaluate the parameters of the yield distribution functions, the eligible losses distribution functions and their correlation. Results show that WFI is slightly superior to crop-specific insurance. Premia are 20% cheaper, and certainty equivalents slightly larger. Yet, the left tail of the revenue distribution is only weakly reduced by either insurance strategy, due to crop risks that are not covered by either policy. The main conclusion is that, if crop-specific insurance is sufficiently mature, farmers would benefit from WFI and Governments would enhance the efficiency of their insurance subsidies.

Suggested Citation

  • Bielza, Maria & Garrido, Alberto, 2006. "Evaluating the Potential of Whole-Farm Insurance Over Crop-Specific Insurance Policies," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25421, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae06:25421
    DOI: 10.22004/ag.econ.25421
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/25421/files/cp060303.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.25421?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1024-1034.
    2. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1024-1034.
    3. Bruce A. Babcock & Dermot J. Hayes, 1999. "Whole-Farm Revenue Insurance for Crop and Livestock Producers," Center for Agricultural and Rural Development (CARD) Publications 99-bp22, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    5. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, March.
    6. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Željko Kokot & Todor Marković & Sanjin Ivanović & Maja Meseldžija, 2020. "Whole-Farm Revenue Protection as a Factor of Economic Stability in Crop Production," Sustainability, MDPI, vol. 12(16), pages 1-11, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anderson, John D. & Harri, Ardian & Coble, Keith H., 2009. "Techniques for Multivariate Simulation from Mixed Marginal Distributions with Application to Whole-Farm Revenue Simulation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), pages 1-15, April.
    2. Ghahremanzadeh, Mohammad & Mohammadrezaei, Rassul & Dashti, Ghader & Ainollahi, Moharram, 2018. "Designing a whole-farm revenue insurance for agricultural crops in Zanjan province of Iran," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 17(02), January.
    3. Sengupta, Sanchita, 2010. "Three Essays in Environmental and Agricultural Issues," ISU General Staff Papers 201001010800002848, Iowa State University, Department of Economics.
    4. Ashok Mishra & Barry Goodwin, 2006. "Revenue insurance purchase decisions of farmers," Applied Economics, Taylor & Francis Journals, vol. 38(2), pages 149-159.
    5. María Bielza & Alberto Garrido & José M. Sumpsi, 2004. "Revenue insurance as an income stabilization policy: an application to the Spanish olive oil sector," Post-Print hal-01201063, HAL.
    6. Hossain, Ferdaus & Jensen, Helen H., 2000. "Lithuania's food demand during economic transition," Agricultural Economics, Blackwell, vol. 23(1), pages 31-40, June.
    7. Paulson, Nicholas David, 2004. "Insuring uncertainty in value-added agriculture: ethanol," ISU General Staff Papers 2004010108000018198, Iowa State University, Department of Economics.
    8. Rubin, Ofir D. & Babcock, Bruce A., 2013. "The impact of expansion of wind power capacity and pricing methods on the efficiency of deregulated electricity markets," Energy, Elsevier, vol. 59(C), pages 676-688.
    9. Vedenov, Dmitry V. & Power, Gabriel J., 2008. "Risk-Reducing Effectiveness of Revenue versus Yield Insurance in the Presence of Government Payments," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(2), pages 443-459, August.
    10. Mitchell, Paul David, 1999. "The theory and practice of green insurance: insurance to encourage the adoption of corn rootworm IPM," ISU General Staff Papers 1999010108000013154, Iowa State University, Department of Economics.
    11. Richards, Timothy J. & Manfredo, Mark R., 2003. "Infrequent Shocks and Rating Revenue Insurance: A Contingent Claims Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(2), pages 1-19, August.
    12. Bielza, Maria & Garrido, Alberto & Sumpsi, Jose Maria, 2002. "Revenue Insurance as an Income Stabilization Policy: An Application to the Spanish Olive Oil Sector," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24842, European Association of Agricultural Economists.
    13. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(2), pages 1-21, December.
    14. Cabrera, Victor E. & Gould, Brian W. & Valvekar, Mayuri, 2009. "Livestock Gross Margin Insurance for Dairy Cattle: An Analysis of Program Performance and Cost under Alternative Policy Configurations," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49262, Agricultural and Applied Economics Association.
    15. Calum G. Turvey & Jeffrey R. Stokes, 2008. "Market Structure and the Value of Agricultural Contingent Claims," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(1), pages 79-94, March.
    16. Bhaskar, Arathi & Beghin, John C., 2007. "Decoupled Farm Payments and the Role of Base Updating Under Uncertainty," Working Papers 7350, Iowa State University, Department of Economics.
    17. Brandon Schaufele & James R. Unterschultz & Tomas Nilsson, 2010. "AgriStability with Catastrophic Price Risk for Cow‐Calf Producers," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(3), pages 361-380, September.
    18. Xiaodong Du & David A. Hennessy & Hongli Feng, 2014. "A Natural Resource Theory of U.S. Crop Insurance Contract Choice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(1), pages 232-252.
    19. Wang, H. Holly & Hanson, Steven D. & Black, J. Roy, 2003. "Efficiency Costs of Subsidy Rules for Crop Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(1), pages 1-22, April.
    20. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, March.

    More about this item

    Keywords

    Risk and Uncertainty;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:iaae06:25421. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iaaeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.