Abstract
AbstractFarm-level data from the Farm Financial Management Database (FINBIN) are used to evaluate the effectiveness of Whole Farm Revenue Protection (WFRP) insurance in diverse farming operations. A panel of diverse Minnesota farms is used to establish actual production history and compute hypothetical performance over three years. This study characterizes the relative riskiness between organic and conventional farms and their comparative insurance performances by avoiding potential adverse selection issues in other studies. Empirical evidence is provided to dispute past empirical findings suggesting that organic farms are riskier than conventional farms, as measured by lower loss ratios.
Highlights
The passing of the 2000 Agricultural Risk Protection Act (ARPA) included two provisions that were directed to benefit producers in organic and diversified crop systems in the United States
As with other federal crop insurance products, base rates are estimated by the Risk Management Agency (RMA) to achieve a targeted loss ratio of 1.0, where indemnities are equal to total premiums (Coble et al 2010)
Premiums per acre were about 30 percent higher for organic farms, which is consistent with the premiums organic products receive
Summary
The passing of the 2000 Agricultural Risk Protection Act (ARPA) included two provisions that were directed to benefit producers in organic and diversified crop systems in the United States. One notable shortcoming of past studies that have evaluated organic crop insurance policies (e.g., Watts and Associates 2010) is that they include only those organic producers who participate in crop insurance programs and grow conventional products.
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