Efficiency of Selected Risk Management Instruments - An Empirical Analysis of Risk Reduction in Kazakhstani Crop Production

Recent academic discussion regarding crop insurance in developing and transition countries has focused on weather index insurance. But empirical analyses of such schemes based on farm level data cannot be found in the literature, though this insurance type shows clear advantages compared to multiple-peril crop insurance and revenue insurance. Recent empirical applications of risk and stochastic programming models focus on the optimisation of production planning, while literature on the effects of crop insurance on the farm level mainly focuses on the empirical investigation of reductions in farm income variance. The novelty of this paper is that it integrates regionally-adapted insurance products and expert-evaluated technology choices into a programming model that analyses activities with regard to their utility-efficiency. Thus, the objective of this paper is to analyse the effects of different risk management instruments on the certainty equivalent of case study farms in three different regions. Specifically, the applied Expected Utility Model analyses on-farm risk management instruments and crop insurance products with regard to their capability of stabilising farm income. Results indicate that only a combination of on-farm and financial risk management measures increases income and efficiently reduces risk. Weather-based insurance, in combination with intensive technology, stabilises income most efficiently in a specialised grain region in Northern Kazakhstan whereas farm-yield insurance combined with an extensive technology is the preferred risk management option in East Kazakhstan, where diversification with oilproducing crops is possible.