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Is there any Supply Response from Pasture, Rangeland, Forage – Rainfall Index Insurance?

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  • Khusru, Amir
  • Tronstad, Russell
  • Aradhyula, Satheesh

Abstract

The primary goal of this research is to determine whether Pasture Rangeland Forage – Rainfall Index (PRF-RI) insurance has any effect on our food supply in the form of influencing county level beef cow inventories in the United States. For all other crop insurance products, except those tied to just price insurance, premiums and indemnity claims are tied to prior and or current production. However, PRF-RI is different in the sense that it has very little to do with actual yield/production, prices, or revenues and indemnities are driven by rainfall received. PRF-RI was introduced in the United States in 2007 in a few states, and by 2016 it was available for all 48 contiguous states. We analyze county-level percentage age changes in beef cow inventories as our dependent variable and consider independent variables such as; average Palmer Drought Severity Index (PDSI) for the April-October grazing season, cumulative grazing season degree days (>34°C), cumulative grazing season county-level precipitation, Log of the US beef cow and state level hay price ratio, and county-level subsidies and indemnities provided by PRF-RI. Our time period spans from 2002 to 2023. We estimated county, county-time, and just county fixed effect models plus cyclical time trend variables. Our climate variables of average grazing season PDSI, cumulative grazing season degree days, precipitation, and quadratic term of precipitation all align with prior literature on being positive, negative, positive, and negative, respectively. The Log of the beef and hay price ratio has a positive and significant effect on annual county level beef cow inventories. Our estimated results indicate that neither subsidy, indemnities, nor the availability of PRF-RI have a statistically significant impact on beef cow inventories at the mean. In addition, PRF-RI may be causing more variation in beef cow inventories rather than less. PRF-RI subsides have grown from $151.2 million in 2016 to $805.8 million in 2025 with $6.9 billion in liabilities and taxpayers have not been getting anything back in return in the form of a more stable or reliable food supply.

Suggested Citation

  • Khusru, Amir & Tronstad, Russell & Aradhyula, Satheesh, 2025. "Is there any Supply Response from Pasture, Rangeland, Forage – Rainfall Index Insurance?," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361176, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:361176
    DOI: 10.22004/ag.econ.361176
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    References listed on IDEAS

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    3. Barry J. Barnett & Olivier Mahul, 2007. "Weather Index Insurance for Agriculture and Rural Areas in Lower-Income Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1241-1247.
    4. Azzam, Azzeddine & Walters, Cory & Kaus, Taylor, 2021. "Does subsidized crop insurance affect farm industry structure? Lessons from the U.S," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1167-1180.
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    6. Daniel Stein, 2018. "Dynamics of Demand for Rainfall Index Insurance: Evidence from a Commercial Product in India," The World Bank Economic Review, World Bank, vol. 32(3), pages 692-708.
    7. Barry K. Goodwin, 2015. "Challenges in the design of crop revenue insurance," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 75(1), pages 19-30, May.
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