Effects of subsidized crop insurance on crop choices

This study focuses on how subsidized crop insurance affects crop choices. Crop insurance may change farm investments by reducing risks and providing subsidies. First, actuarially fair insurance reduces risks in crop production and marketing, holding the expected return constant. Second, insurance subsidies encourage farms to purchase crop insurance, which increases the expected return to insured risky crops. Farms also have many self‐insurance mechanisms such as crop diversification or working off the farm. We derive conditions under which (1) unsubsidized and actuarially fair crop insurance or (2) insurance premium subsidies lead to more investment in a risky higher return crop. We then examine the role of self‐insurance for these conditions. The impact of premium subsidies is decomposed into a direct profit effect and an indirect coverage effect. These effects are explained by substitutions between market insurance and self‐insurance and between a risky crop and a safe crop. We discuss each effect as a combination of subsidy and risk effects. Numerical illustrations show that an insurance subsidy has a larger impact on risky crop investments compared to that of an input subsidy when farms are more risk‐averse and have high costs of self‐insurance. The framework provides a novel way to evaluate subsidized crop insurance programs.     

Geography of crop yield skewness

Analysis of crop yield distributions provides insights into better understanding how natural resources shape agricultural productivity. This study seeks to provide a rigorous theoretical and empirical understanding of the effects of exogenous geographic and climatic factors on the first three moments of crop yields with focus on the third moment. We hypothesize that exogenous factors having beneficial effects on crop production should make crop yield distributions less positively or more negatively skewed. We employ a large crop insurance data set for corn, soybean, and wheat to find general support for our natural‐resources‐determines‐skewness hypothesis. The proposed statistical method optimally uses correlations between the first three moments. It significantly improves estimation performance over existing methods, including the linear moment model which has been commonly applied in the literature.     

Investigating the performance of different estimation techniques for crop yield data analysis in crop insurance applications

We investigate the performance of the ordinary least squares (OLS)‐, M‐, MM‐, and the Theil–Sen (TS)‐estimator for crop yield data analysis in crop insurance applications using Monte Carlo simulations. More specifically, the performance is assessed with respect to trend estimation, prediction of future yield levels, and the estimation of expected indemnity payments. In agreement with earlier findings, other estimators are found to be superior to OLS in simple regression problems if yield distributions are outlier contaminated and heteroscedastic. While this conclusion is also valid for subsequent applications such as yield prediction and the estimation of expected indemnity payments, the difference between the considered estimators becomes less distinct. For these applications, we find particularly the M‐estimator to be a good compromise between high‐breakdown (very robust) estimators and the very efficient OLS‐estimator. Because no regression technique dominates all others in all applications and scenarios for error term distributions, our results underline that the choice of the estimation technique should be dependent on the purpose of the crop yield data analysis. However, alternative estimators such as M‐, MM‐, and TS‐estimator can reduce (and bound) the risk of unreliable or inefficient crop yield data analysis in crop insurance applications.     

Land use changes to cash crop plantations: crop types,multilevel determinants and policy implications

Cash crop plantation has recently become an expanding global phenomenon. Characterizing the dynamics of cash crop plantations and the corresponding determinants should provide critical references for land use policy. Using aerial photos and geographic information system, this paper investigated the trends of four types of cash crops (tea, fruit, mulberry and nursery) and their relations to other land use changes within Hangzhou region in subtropical China. Results showed that the total cash crop cultivated surface increased by 541.3 ha from 2004 to 2014. Most of the new tea and fruit plantations were established in places previously used as forest and woodland. Mulberry and nursery mainly expanded by replacing paddy, woodland and forest. By combining household survey, geospatial techniques and multilevel regression, multilevel determinants of cash cropping probability and cash crop expansion were quantified. At the parcel level, tea and fruit plantations inclined to occur on hilly land with gentle slope. Mulberry and nursery plantations were likely to be observed in flat areas with low elevation. Parcels covered by high quality soils and with convenient communications experienced greater cash cropping probability. At the household level, households constituted of female and old-aged labor or with low agricultural labor intensity demonstrated high probability of tea and mulberry plantations. Conversely, households constituted of middle-aged labor or with high agricultural labor intensity tended to grow more fruit and nursery. Besides, wealthier households were prone to establish fruit and nursery plantations but were reluctant to involve in tea and mulberry cropping. At the village level, population density was a significant determinant of cash cropping probability, but was an insignificant determinant of cash crop expansion. Greater occurrence of cash cropping was observed in villages with higher proportion of migrant labor and leasing land. Distance to county road and distance to provincial road were identified as negative determinants. Policy was evidenced to be of significant influence on cash cropping probability and cash crop expansion. We argue that a balance should be achieved between cash cropping promotion and natural resources protection in formulating the local land use policy.     

Moral hazard and subsidized crop insurance

Along with adverse selection, moral hazard is one of the major hurdles that private and public insurance plans must contend with. Moral hazard occurs if risks are endogenous to a producer's behavior and if the insurer is unable to properly monitor the insured. We review the role of moral hazard in the US crop insurance program. We conduct an empirical analysis of one important aspect of the US crop insurance program—prevented planting. This provision provides indemnity payments if conditions are not suitable for planting. The program has been the subject of considerable controversy, especially during 2019, when the rate of claims is expected to be especially high. Because loss adjustors may encounter difficulties in assessing the weather conditions associated with prevented planting claims, the program is susceptible to moral hazard. We consider the extent to which prevented planting claims may be endogenous to prices. We find significant evidence of moral hazard. The likelihood of prevented planting claims increases as the expected market price decreases or as fertilizer costs increase for corn and soybeans in the Prairie Pothole Region and for grain sorghum and cotton in all states.     

Risk preferences of commodity crop producers and specialty crop producers: An application of prospect theory

Producers’ decisions, such as crop insurance, contract agreement, and technology adoption, involve considerable risk and uncertainty. Particularly, specialty crop production is more vulnerable to risk and requires more intensive management than commodity crop production, while risk mitigation tools for specialty crop production are comparatively limited. We apply Prospect Theory (PT) to analyze risk preferences of U.S. producers, and further compare the preference differences between commodity crop and specialty crop producers. Reference dependent, diminishing sensitivity, loss aversion, and probability weighting, as well as certain farm characteristics and producer demographics, are found to have a significant impact on grower risk attitudes. In addition, we do not observe significant differences in the base PT estimates between commodity crop and specialty crop producers. However, the relationships between risk behavior and individual characteristics vary between the two types of producers, which shed lights on the development of agricultural policies and provide implications for the design of contract and insurance.     

Delayed monsoon,irrigation and crop yields

Most of the empirical literature assessing the impacts of climate change on agriculture has modeled crop yields as a function of the levels or deviations in the growing-period rainfall. However, an aspect that has received little attention in the empirical literature relates to the relationship between the timing of monsoon rains and crop yields. Using a pan-India district-level panel dataset for 50 years, this article investigates two interrelated issues critical to understanding the impacts of weather-induced agricultural risks and their management. It first examines the impact of the timing of monsoon onset on crop yields and then assesses the role of irrigation in mitigating its effects. The article finds that the delayed onset of monsoon is detrimental to crops, and its effects are realized beyond the rainy season. The findings also demonstrate that irrigation helps mitigate the harmful effects of delayed monsoon. Finally, to link these findings to farm-level adjustments, the article shows that farmers explicitly adjust the timing of irrigation in response to delays in monsoon rains.     

The carbon footprints of food crop production

The agriculture sector contributes significantly to global carbon emissions from diverse sources such as product and machinery manufacture, transport of materials and direct and indirect soil greenhouse gas emissions. In this article, we use farm survey data from the east of Scotland combined with published estimates of emissions for individual farm operations to quantify the relative contribution of a range of farming operations and determine the carbon footprint of different crops (e.g. legumes, winter and spring cereals, oilseed rape, potato) and farming practices (conventional, integrated and organic). Over all crops and farm types, 75% of the total emissions result from nitrogen fertilizer use (both organic and inorganic)—from production, application, and direct nitrous oxide emissions from the soil resulting from application. Once nitrogen is accounted for, there are no major differences between organic, integrated or conventional farming practices. These data highlight opportunities for carbon mitigation and will be of value for inclusion in full life cycle analyses of arable production systems and in calculations of greenhouse gas balance associated with land-use change.     

Projecting future crop productivity for global economic modeling

Assessments of climate change impacts on agricultural markets and land‐use patterns rely on quantification of climate change impacts on the spatial patterns of land productivity. We supply a set of climate impact scenarios on agricultural land productivity derived from two climate models and two biophysical crop growth models to account for some of the uncertainty inherent in climate and impact models. Aggregation in space and time leads to information losses that can determine climate change impacts on agricultural markets and land‐use patterns because often aggregation is across steep gradients from low to high impacts or from increases to decreases. The four climate change impact scenarios supplied here were designed to represent the most significant impacts (high emission scenario only, assumed ineffectiveness of carbon dioxide fertilization on agricultural yields, no adjustments in management) but are consistent with the assumption that changes in agricultural practices are covered in the economic models. Globally, production of individual crops decrease by 10–38% under these climate change scenarios, with large uncertainties in spatial patterns that are determined by both the uncertainty in climate projections and the choice of impact model. This uncertainty in climate impact on crop productivity needs to be considered by economic assessments of climate change.     

Modelling stochastic crop response to fertilisation when carry-over matters

Soils in a large part of Niger's agricultural area are sandy and very low in nitrogen (N), phosphorus (P) and organic matter. This low soil fertility combined with low and erratic rainfall constitutes a severe constraint on food cropping in the area. Although agronomists have advised chemical fertilization as a means of improving soil fertility, little fertilizer has been used in this area of the world. The economic management of soil fertility in the agricultural area of Niger is analyzed using a dynamic model of farmer decision-making under uncertainty. The model is based on agronomic principles of plant growth and accounts for the carry over of P, an immobile nutrient. At current input prices, a soil P content of at least 14 ppm is found to be desirable. This target is above the natural soil fertility level of about 3 ppm. It can be maintained with a moderate annual application (12 kg P₂O₅ ha^?1) of simple superphosphate. Results also suggests that returns to N fertilization are too low and variable to warrant the use of this input.     

Rural nonfarm activities and agricultural crop production in Nigeria

Although most rural households are involved in the farm sector, the nonfarm sector has grown significantly in recent decades, and its role in rural development has become increasingly important. This article examines the effect of participation in nonfarm activities on crop expenses of farm households in Nigeria. The relationship is modeled using a nonseparable agricultural household model that suggests that participating in nonfarm activities can relax the credit constraints facing farm households and reduce risk thereby helping households improve farm production and smooth consumption over time. The results show that participation in nonfarm activities by Nigerian farmers has a positive and significant effect on crop expenses and in particular on payments for hired labor and inorganic fertilizers. Separate analysis of the six geopolitical zones in Nigeria indicates that it is in the South-South and South-East zones where nonfarm participation appears to induce more hiring of labor. The results support the hypothesis that nonfarm participation helps relax liquidity constraints but suggests how that liquidity is used is zone-specific. In general, the results also indicate that liquidity is used more to pay for inputs into staple production as opposed to cash crops.     

A local maximum likelihood model of crop yield distributions

In this note, we propose a local maximum likelihood estimator for spatially-dependent distributions. Our estimator adopts the Poisson regression approach for density ratio models and incorporates spatial smoothing via local regression. We also present a method of smoothing parameter selection. We illustrate this easy-to-implement estimator with an application to the estimation of corn yield distributions of Iowa counties. The usefulness of the approach is further demonstrated via an application to the estimation of crop insurance premium.     

Input use under cost-of-production crop insurance: Theory and evidence

There have been a number of previous studies that examined the effects of yield- or revenue-based crop insurance products on input use of farmers. However, no study has specifically investigated the input use impacts of a cost-of-production (COP) crop insurance policy, even though this type of crop insurance is the predominant one used in several other countries outside of the United States (such as the Philippines and China). This article aims to theoretically and empirically examine the effect of a COP crop insurance product on farmers’ chemical input use. Our theoretical model suggests that the effect of COP insurance on input use can either be positive or negative, with the resulting impact depending on the strengths of (a) the traditional moral hazard effect of insurance (i.e., an input use decreasing effect); versus (b) the marginal incentives to apply more inputs due to input levels being the main determinant for expected indemnity amounts in this type of insurance (i.e., an input use increasing effect). A survey data set from corn farmers in the Philippines is then used to empirically illustrate how a particular COP insurance product influences input use in a real-life context. In this case, we find that COP insurance increases the use of chemical inputs (e.g., fertilizers and total chemical expenditure), implying that the positive marginal incentive to apply more inputs dominates the negative moral hazard effect.     

Evaluating the impact of rising fertilizer prices on crop yields

Because of tensions on fossil energy and phosphorus markets, the rise in fertilizer prices observed during the last decades may continue in the future, putting into question production pathways relying heavily on crop intensification. To evaluate how, in this context, economic choices may alter crop yields, we first construct different fertilizer price scenarios to 2050 based on an econometric relation with oil and gas prices. Other possible scenarios, such as the continuation of historical trends, are also considered. The resulting changes in fertilizer price range between +0.8% and +3.6% per year over the 2005–2050 period. These scenarios are tested in a global land‐use model incorporating an endogenous representation of the land–fertilizer substitution. We find that the supply‐side response to rising fertilizer prices could lower crop yields in 2050 from ?6% to ?13%, with a corresponding increase in global cropland area ranging between 100 and 240 Mha if the demand for food and nonfood products has to be met. The sensitivity of these results is tested with regard to assumptions on food consumption, change in potential yield and nutrient use efficiency.     

Problems in planning tropical tree crop projects and possible solutions

Abstract

This paper considers whether top‐grade diary beef produced in Japan and high‐quality beef imports from the USA are components of the same product market. In addressing this issue an approach is used for defining the nature and extent of a product market relying on the concept of instantaneous causality. The results, for selected cuts of beef, suggest that the markets are in fact separate.     

Transitional pathways towards input reduction on French field crop farms

In order to maintain their income, using European Union grants, mountain livestock farms need to have a production plan based on animal production and environmental objectives. To help farmers to do this, we develop a method allowing the evaluation of land management strategies that are compatible with both objectives. The strategies set up by farmers were examined from four aspects: forage production to feed livestock, grassland sustainability, avoiding dominance of invasive species and enhancing species diversity, and field characteristics which restrict the range of possible uses. Using this method on four suckling cow farms in the Central Pyrenees (SW France), chosen from 40 farms differing in stocking rate per ha and on their ability to grow their own forage, we identify three land management strategies differing in their balance between animal production and grassland improvement objectives. The first and second were focused on animal production and land sustainability, respectively. The third is a compromise between the two objectives. We show that the relative importance of planning and monitoring rules differed for the three strategies. For the first, the planning process is very important, whereas there is not much monitoring required. The converse is true for the other strategies.