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.     

Coping with systemic risk in index‐based crop insurance

The implementation of index‐based crop insurance is often impeded by the existence of systemic risk of insured losses. We assess the effectiveness of two strategies for coping with systemic risk: regional diversification and securitization with catastrophe (CAT) bonds. The analysis is conducted in an equilibrium pricing framework which allows the optimal price of the insurance and the number of traded contracts to be determined. We also explore the role of basis risk and risk aversion of market agents. The model is applied to a hypothetical area yield insurance for rice producers in northeast China. If yields in two regions are positively correlated, we find that enlarging the insured area leads to higher insurance premiums. Unless capital market investors are very risk averse, a CAT bond written on an area yield index outperforms regional diversification in terms of certainty equivalents of both farmers and insurers.     

Demand for temperature and rainfall index insurance in India

Weather index insurance has been attracting considerable attention from academics and policymakers. This study investigates the demand for two types of index insurance sold in India: temperature index insurance for dry season and rainfall index insurance for subsequent monsoon season. Using data from randomized subsidy experiments, we separate purchase and quantity decisions and investigate how demand for rainfall insurance is correlated with demand for temperature insurance sold in the previous season. We find that the price (premium) does not influence purchase decisions per se but does significantly influence quantity decisions. The quantity demanded is less price‐sensitive for subsequent rainfall insurance than it is for temperature insurance. We also find that purchasers of temperature insurance tend to buy rainfall insurance more often than nonpurchasers do. However, a one‐time subsidy does not influence on subsequent demand, suggesting no price‐anchoring effect.     

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.     

Warming temperatures will likely induce higher premium rates and government outlays for the U.S. crop insurance program

Likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Under a 1°C warming scenario, we find that premium rates at the 90% coverage level will increase by 39% on average; however, there is considerable statistical uncertainty around this average as the 95% confidence interval spans from 22% to 61%. We also find evidence of extensive cross‐sectional differences as the county‐level rate impacts range from a 10% reduction to a 63% increase. Results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts. Under the 1°C warming scenario, we find that annual subsidy payments for the crop insurance program could increase by as much as $1.5 billion, representing a 22% increase relative to current levels. This estimate increases to 3.7 billion (57%) under a 2°C warming scenario. Our results correspond to a very specific counterfactual: the marginal effect of warming temperatures under current technology, production, and crop insurance enrollments. These impacts are shown to be smaller than the forecasted impacts under a commonly used end‐of‐century general circulation model for even the most optimistic CO₂ emissions projection.     

How crop insurance influences agrochemical input use: Evidence from cotton farmers in China

Crop insurance is critical in risk management in global agricultural production (e.g. by helping stabilise farmers' incomes in the long term and reducing risk-bearing costs). In this paper, using field survey data on cotton farmers in Xinjiang, China, we examine the influence of crop insurance on farmers' behaviours regarding agrochemical inputs and aim to investigate the synergy between crop insurance and reductions in fertiliser and pesticide usage. We find evidence that crop insurance significantly negatively affects farmers' use of fertilisers and pesticides, as well as significantly positively affects their adoption of green agricultural technologies (GAT) that can replace or complement traditional fertilisers and pesticides. Moreover, our results reveal that compared with small-scale farmers, crop insurance has a stronger effect on large-scale farmers' use of agrochemicals. Finally, when the insured amount is higher or the relative deductible is lower, farmers are more likely to reduce fertiliser and pesticide usage and adopt GAT. Overall, this paper scientifically identifies crop insurance can improve farmers' agrochemical input behaviour, by reducing farmers' use of traditional agrochemical inputs and increasing their adoption of GAT, which is of great significance for ensuring the safety of the agricultural ecological environment.     

Crop insurance policies and purchases in France

While many crop insurance systems have been reformed around the world, few academic researches have addressed the determinants of the decision on crop insurance at the farm's micro level. In this article, both the financial and the agricultural literature lead to the identification of many rationales for the crop insurance decision. Using data from the period 2003–2006 on a representative survey of French farms (FADN‐RICA), we investigate the different factors that incite farmers to insure against crop risk. We emphasize that the highest risk farms are more likely to have insurance and this decision is positively related to the past amount of claims. Insurance is subscribed by larger farms because insurance appears too expensive for smaller farms, which are indeed naturally less diversified. Interestingly, financial variables (such as capital structure or return on investment) do not significantly determine the insurance decision.     

Gender,control, and crop choice in northern Mozambique

Women play an important role in the agricultural production process in developing countries, yet their role in making decisions about what to grow and implications for household welfare remains poorly understood. In this article, I study women's empowerment in northern Mozambique as it relates to agriculture, considering in particular the factors associated with women managing the plots that they nominally control. Women control about 30% of the plots in the data, but only manage about 70% of those plots. Using a unique panel data set, I find that women are more likely to manage plots when households have had historic access to off‐farm labor, typically completed by men. When women manage plots, they tend to grow crops with less complicated production techniques and are less likely to grow the main area cash crop. However, conditional on historic access to off‐farm labor their farm incomes are the same as among men.     

Making community forest management work in northern Vietnam by pioneering participatory action

Transfer of land-use rights from the state to individual households and groups of households to encourage community forest management (CFM) and use of forest resources for livelihood improvement, has been in place in Vietnam since the 1990s. However, to date there has been no evidence of allocation to groups of households as community entities with joint ownership. This paper examines the success of processes tested in four villages in mountainous northern Vietnam to officially secure joint ownership of and exclusive rights to community forest land. After four years, implementation of CFM led to enhanced equality and distribution of benefits, and better protection of forest resources. Household income remained largely unchanged, in part because of loss of income from activities which were now illegal, but also because it was too early for benefits to flow from new forestry initiatives. Active participation of and between village communities in land-use planning and allocation, and a willingness to compromise, particularly on the position of land boundaries, were essential elements to ensuring equity in the distribution of benefits. Lack of enabling processes and experience in the implementation of government policies mean that further support for village communities is needed to fully realize the benefits from joint management of the allocated community forest.     

Demand for a labor‐based drought insurance scheme in Ethiopia: a stated choice experiment approach

Index‐based weather insurance is increasingly used to manage weather‐related risks in smallholder agriculture. However, cash‐constrained smallholders often lack the resources to pay an insurance premium, which may undermine its wider adoption. This article investigates alternative insurance payment methods that may help to enhance the adoption of index‐based weather insurance. We use a choice experiment to elicit smallholders’ willingness to pay in cash or labor for index‐based weather insurance in four districts in the south‐central highlands of Ethiopia. The insurance schemes were created using a fractional factorial design with three factors: work, cash, and payout rate. We analyze the choice data using a random parameter mixed logit model. We find that the average participants need a subsidy to pay cash for insurance because their willingness to pay is less than the expected cost of the insurance. On average, they are willing to pay only 0.81 ETB (Ethiopian currency) to get an expected yearly payout of 1 ETB. However, most are willing to participate in work‐for‐insurance programs at lower daily wage rates than is common for other work programs in Ethiopia.     

Interaction between crop insurance and technology adoption decisions: The case of wheat farmers in Chile

This paper examines relationships between crop insurance and input technology decisions among Chilean wheat farmers. Using nationwide farm‐level data, a bivariate probit model is estimated. We investigate the extent to which the adoption of production input technologies is associated with farmers’ participation in the insurance program. We find that relationships between insurance and technology decisions are significant only for family farmers. In particular, there is a negative relationship between participation in the insurance program and the adoption of modern irrigation. Interpretations based on the role of input technologies on insurance adoption and adverse selection behaviours are discussed.     

Afforestation and forestry land allocation in northern Vietnam: Analysing the gap between policy intentions and outcomes

Many tropical countries have recently implemented similar forest policies including large-scale afforestation programmes and the devolution of land-use rights. Their success in enhancing livelihoods and contributing to improved environmental services has been widely questioned. This paper discusses the impacts of state afforestation efforts and forestry land allocation on farmers’ land-use decisions in northern Vietnam. It links policy outcomes with factors located beyond the local level by analysing the decision-making process at the policy implementation stage. Our study suggests that the current national afforestation campaign has not successfully involved households in the forestry sector and that forestry land allocation to households has often disrupted existing land-use systems with little impact on afforestation. These discrepancies between policy intentions and outcomes are partly linked to the relative freedom provinces have to interpret and adapt policies during the implementation stage. In this respect, the political and economic context has played a significant role in providing particular financial and bureaucratic incentives to the former State Forest Enterprises and to civil servants. However, we argue that these actors have been allowed or even encouraged to take advantage of these incentives by national policy-makers thanks to: (1) the lack of clarity or the poor adequacy of the policies designed at the central level, and (2) the blurred character of prevailing national discourses promoting afforestation and community-based forest management. We recommend that national policy-makers allow flexibility in policy implementation but develop mechanisms of accountability and control between the provincial and the central authorities.     

我国洪水保险中的风险评价方法探讨

以洪灾风险模型、抗灾性能模型为基础,建立工程项目的毁损率与频率关系。对工程保险标的进行期望损失值计算与风险成本收益分析,以此为据对工程项目进行风险分级评价,形成较为系统的洪水保险风险分级评价方法。     

Assessing farmers’ risk preferences and their determinants in a marginal upland area of Vietnam: a comparison of multiple elicitation techniques

We examine the consistency of risk preference measures based on eight hypothetical elicitation methods and a lottery game applied to smallholder farmers in a marginal upland environment in Vietnam. Using these measures, we identify influencing factors of risk aversion via regression analysis, whereby unlike previous studies, we include several proxies of social capital such as social networks and norms. Data were collected from household heads and spouses separately in a random sample of 300 households. Although correlations between most of the various risk preference measures are all statistically highly significant, most are weak. On average, respondents have a high degree of risk aversion and specific characteristics—gender, age, idiosyncratic shocks, education, social norms, network‐reliance with extended family, and connections to local authorities—are significant determinants of risk preferences across most elicitation methods, whereas others—the household's dependency ratio, wealth, and covariate shocks—are significant in a few methods only. The explanatory power of the models is limited, indicating that other factors are likely to be of greater importance in determining risk preferences. The results can help target safety nets, encourage investments, and lead to the development of more applicable methods for assessing risk preferences of smallholders in developing countries.     

Strategies for integrating farmers into modern vegetable supply chains in Vietnam: farmer attitudes and willingness to accept

In Vietnam, the development of so‐called ‘modern’ vegetable supply chains is receiving considerable interest amongst researchers and governments. This interest partly stems from the view that enhancements in food safety can be achieved if farmers are willing to adopt supply chains that are often associated with ‘western’ forms of retailing. Our study investigates farmers’ willingness to change to two ‘modern’ alternatives – a supply model based on cooperatives and another based on investors facilitating the change. Using discrete choice data drawn from 412 farmers, mixed logit models in willingness to pay space are developed that reveal the relative importance of different drivers of change. The paper offers insights that can inform governments about the incentives required to bring about change. In addition, the paper illustrates the novel application of a choice experiment to enumerating the perceived costs of changes in vegetable supply chains.     

Changing food consumption patterns in rural and urban Vietnam: Implications for a future food supply system

Rapid income growth and urbanisation could significantly change the composition of the food basket in many emerging economies. This study estimates a demand system, including 15 major food items in Vietnam, with multiyear household survey data. We find a large variation in the estimated price elasticities (–0.05 to –0.88) and expenditure elasticities (–0.16 to 2.56). Food types, urban status and income groups can explain this variation. We also find that the staple food, rice, is already an inferior good for rich urban households in Vietnam. Moreover, food preferences are evolving away from rice but towards animal proteins (fish, pork, chicken, eggs and milk), fruits and vegetables, irrespective of urban status and income groups. As the Vietnam economy continues to grow with a doubling of gross domestic product (GDP) in the next decade, per capita rice consumption in both urban and rural areas and across different income groups will continue to decline, whereas demand for other high‐value products will rise. Thus, government policy should focus on encouraging demand‐oriented food production. In addition, crop diversification at the farm level needs to improve substantially to meet the rising demand for these food products due to income growth and urbanisation.