Price Analysis, Risk Assessment, and Insurance for Organic Crops

The Agricultural Risk Protection Act of 2000 recognized organic farming as a"good farming practice," making federal crop insurance coverage available for organiccrops, and taking into account the idiosyncrasies of the organic production system. Inaddition to the production risks covered for conventional producers, organic farmerswho sign up for coverage are compensated for production losses from damage due toinsects, disease, and/or weeds. However, the incorporation of organic production intothe crop insurance rating structure has been limited. Organic producers are charged anarbitrary 5% premium surcharge over conventional crop insurance. The actuarialfairness of this premium is, at least, questionable. In addition, in the case of crop failure,organic farmers receive compensation based on the prices of conventionally producedcrops. Thus, price premiums that organic producers are able to obtain in the market arenot compensated for under the current insurance policy structure.The Food, Conservation and Energy Act of 2008, which amends part of theFederal Crop Insurance Act, was written to investigate some of these claims, requiringthe U.S. Department of Agriculture to examine the currently offered federal cropinsurance coverage for organic crops as described in the organic policy provisions of theAct (Title XII). Such provisions established the need to review, among other things, theunderwriting risk and loss experience of organic crops; determine whether significant,consistent, or systematic variations in loss history exist between organic and nonorganicproduction; and modify the coverage for organic crops in accordance with the results.Here we present the major findings of three analyses we performed on keyelements of the insurance of organic crops—prices, yields, and revenue—in an effort tocontribute to the design of an organic crop insurance policy that covers organicproducers according to their idiosyncratic risks.