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Revenue Protection for Organic Producers: Too Much or Too Little

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  • Singerman, Ariel
  • Hart, Chad E.
  • Lence, Sergio H.

Abstract

A framework is developed to examine the 2011 pilot program established by the Risk Management Agency (RMA) to insure organic crops. Given that for insurance purposes RMA links organic crop prices to their conventional counterparts by a fixed percentage, we calibrate our model to reflect the organic and conventional corn markets to illustrate the impacts that such pricing potentially has on Revenue Protection coverage under different scenarios. Findings indicate that at the 75% nominal coverage level, RMA’s fixed price factor implies an effective coverage ranging from 45 to 106% depending on what the organic to conventional market price ratio is; resulting, therefore, in lower and higher indemnities compared to those organic producers should get when considering their idiosyncratic revenue distribution.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 33912.

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Date of creation: 22 Jun 2011
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Handle: RePEc:isu:genres:33912

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: crop insurance; organic production; revenue protection;

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References

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  1. Bruce A. Babcock & David A. Hennessy, 1996. "Input Demand under Yield and Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
  2. Sergio H. Lence & Dermot J. Hayes, 2005. "Genetically Modified Crops: Their Market and Welfare Impacts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 931-950.
  3. Lence, Sergio H. & Hayes, Dermot J., 2002. "U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenue," Staff General Research Papers 1779, Iowa State University, Department of Economics.
  4. Singerman, Ariel & Hart, Chad E. & Lence, Sergio H., 2010. "Demand For Crop Insurance By Organic Corn And Soybean Farmers In Three Major Producing States," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 60935, Agricultural and Applied Economics Association.
  5. McBride, William D. & Greene, Catherine R., 2008. "The Profitability of Organic Soybean Production," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6449, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  6. Nicolai V. Kuminoff & Ada Wossink, 2010. "Why Isn't More US Farmland Organic?," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 240-258.
  7. Hart, Chad E. & Hayes, Dermot J. & Babcock, Bruce A., 2003. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Staff General Research Papers 10669, Iowa State University, Department of Economics.
  8. Loureiro, Maria L. & McCluskey, Jill J. & Mittelhammer, Ronald C., 2001. "Assessing Consumer Preferences For Organic, Eco-Labeled, And Regular Apples," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(02), December.
  9. Klonsky, Karen & Greene, Catherine R., 2005. "Widespread Adoption of Organic Agriculture in the US: Are Market-Driven Policies Enough?," 2005 Annual meeting, July 24-27, Providence, RI 19382, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. Wright, Brian D, 1979. "The Effects of Ideal Production Stabilization: A Welfare Analysis Under Rational Behavior," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1011-33, October.
  11. Babcock, Bruce A. & Blackmer, Alfred M., 1992. "The Value Of Reducing Temporal Input Nonuniformities," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(02), December.
  12. Babcock, Bruce A. & Blackmer, A. M., 1992. "Value of Reducing Temporal Input Nonuniformities (The)," Staff General Research Papers 10587, Iowa State University, Department of Economics.
  13. Paulson, Nicholas D. & Babcock, Bruce A., 2007. "Get a GRIP: Should Area Revenue Coverage be Offered through the Farm Bill or as a Crop Insurance Program?," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9842, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  14. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, April.
  15. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
  16. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
  17. Singerman, Ariel & Lence, Sergio H. & Kimble-Evans, Amanda, 2010. "Organic Crop Prices, or 2x Conventional Ones?," Staff General Research Papers 31544, Iowa State University, Department of Economics.
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