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Get a GRIP: Should Area Revenue Coverage Be Offered through the Farm Bill or as a Crop Insurance Program?

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Abstract

The successful expansion of the U.S. crop insurance program has not eliminated ad hoc disaster assistance. An alternative currently being explored by members of Congress and others in preparation of the 2007 farm bill is to simply remove the "ad hoc" part of disaster assistance programs by creating a standing program that would automatically funnel aid to hard-hit regions and crops. One form such a program could take can be found in the area yield and area revenue insurance programs currently offered by the U.S. crop insurance program. The Group Risk Plan (GRP) and Group Risk Income Protection (GRIP) programs automatically trigger payments when county yields or revenues, respectively, fall below a producer-elected coverage level. The per-acre taxpayer costs of offering GRIP in Indiana, Illinois, and Iowa for corn and soybeans through the crop insurance program are estimated. These results are used to determine the amount of area revenue coverage that could be offered to farmers as part of a standing farm bill disaster program. Approximately 55% of taxpayer support for GRIP flows to the crop insurance industry. A significant portion of this support comes in the form of net underwriting gains. The expected rate of return on money put at risk by private crop insurance companies under the current Standard Reinsurance Agreement is approximately 100%. Taking this industry support and adding in the taxpayer support for GRIP that flows to producers would fund a county target revenue program at the 93% coverage level.

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File URL: http://www.card.iastate.edu/publications/DBS/PDFFiles/07wp440.pdf
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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 07-wp440.

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Date of creation: Jan 2007
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Handle: RePEc:ias:cpaper:07-wp440

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Keywords: area revenue insurance; commodity programs; crop insurance; Group Risk Income Protection;

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References

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  1. Lence, Sergio H. & Hayes, Dermot J., 2002. "U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenue," Staff General Research Papers, Iowa State University, Department of Economics 1779, Iowa State University, Department of Economics.
  2. Barnett, Barry J. & Black, J. Roy & Hu, Yingyao & Skees, Jerry R., 2005. "Is Area Yield Insurance Competitive with Farm Yield Insurance?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 30(02), August.
  3. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
  4. Vedenov, Dmitry V. & Miranda, Mario J. & Dismukes, Robert & Glauber, Joseph W., 2004. "Economic Analysis of the Standard Reinsurance Agreement," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20345, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. Jeffrey R. Brown & Amy Finkelstein, 2008. "The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market," American Economic Review, American Economic Association, American Economic Association, vol. 98(3), pages 1083-1102, June.
  6. Bruce A. Babcock & Chad E. Hart, 2005. "How Much "Safety" Is Available under the U.S. Proposal to the WTO?," Center for Agricultural and Rural Development (CARD) Publications, Center for Agricultural and Rural Development (CARD) at Iowa State University 05-bp48, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  7. Alan P. Ker & Keith Coble, 2003. "Modeling Conditional Yield Densities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 85(2), pages 291-304.
  8. Barry K. Goodwin & Alan P. Ker, 1998. "Nonparametric Estimation of Crop Yield Distributions: Implications for Rating Group-Risk Crop Insurance Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 80(1), pages 139-153.
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Cited by:
  1. Singerman, Ariel & Hart, Chad E. & Lence, Sergio H., 2011. "Revenue Protection for Organic Producers: Too Much or Too Little," Staff General Research Papers, Iowa State University, Department of Economics 33912, Iowa State University, Department of Economics.
  2. Wang, Yang & Barnett, Barry J. & Coble, Keith H. & Harri, Ardian, 2012. "Yield Aggregation Impacts on a “Deep Loss” Systemic Risk Protection Program," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124875, Agricultural and Applied Economics Association.

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