Abstract
Large-scale algae production has garnered interest due to its potential as a biofuel feedstock. Previous research assessing the profitability of algae products has been mostly based on values averaged over time, but algae production and resulting financial returns exhibit significant variability due to weather and fluctuations in selling prices for algae-based products. In other sectors, producers often reduce weather- and market price-related financial risk with financial instruments such as insurance, but little research has been performed on the design of insurance products to protect algae producers. This study develops a novel index-based insurance instrument that pays-out during unfavorable weather and market conditions, then explores the instrument's effectiveness, combined with a cash reserve, in reducing revenue stream variability for an algae producer. Results indicate that a biophysically based index-insurance product tailored to the specific financial risks in algae production can reduce variability in net revenues and can do so at a lower cost than relying solely on cash reserves, the most common financial risk management tool. Assessing the performance of index-insurance in algae production is particularly timely given the passage of the 2018 Farm Bill, which newly opens opportunities for the USDA to provide crop insurance to algae producers.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.