Abstract
Crop revenue insurance has been widely discussed recently. It has become an important mechanism for risk management of crop yield and prices. However, a more comprehensive study is needed to investigate the dependence structure between the variables analyzed to calculate the premium rate actuarially fair for revenue insurance. This study proposes alternatives to calculate premium rates for revenue insurance using parametric copula functions. These methods were applied to data on soybean yield in the municipalities of Toledo, Cascavel Castro, and Guarapuava in Parana State (Brazil) and provided by the Institute of Economic and Social Development of Parana (IPARDES). Nominal prices received by producers in Parana State were provided by the Secretariat of Agriculture and Supply of Parana (SEAB).
Highlights
Agriculture is extremely important for Brazil, both economically and socially; many risks threaten all agribusiness chains to a greater or lesser degree
Alternative approaches were proposed to calculate revenue insurance premium rates using parametric copulas with parametric marginal and empirical marginal distributions. These methods were applied to soybean yield data from the municipalities of Toledo, Cascavel, Guarapuava and Castro of Parana State and nominal monthly prices received by producers in Parana State
It is concluded that the parametric models that best fit the yield and price series of all municipalities were the Odd Log-Logistics Normal (OLLN) and Skew-t models, respectively
Summary
Agriculture is extremely important for Brazil, both economically and socially; many risks threaten all agribusiness chains to a greater or lesser degree. Climate risks affect crop yield and market risks can lead to significant changes in commodity prices. The development of risk management strategies requires the understanding of the nature of the risk, its origin, its likelihood distribution, its correlation with other risks and the capability of instruments to reduce it. Several strategies could be used by the agricultural sector to manage risks, namely crop diversification, new production techniques, agricultural derivatives and crop insurance. Crop insurance is efficient to protect the producer’s income in adverse conditions and is an important instrument to transfer the risk from producers to other economic agents. Insurance guarantee the income when some event occurs that causes economic damage by comparing their income with the scenario without such an event, upon payment of a premium and an indemnity, in case of damages
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