Insurance premium subsidies and disaster relief payments are government actions that can help to smooth farmers' incomes between years. In the EU crop insurance based on public-private partnership is promoted. We present an analysis based on farmers' stated preferences with split data approach of crop insurance and disaster relief provided by the government. Results reveal that farmers' willingness to pay for crop insurance is conditional on the prospect for government disaster relief.
Purpose -The purpose of this paper is to investigate the demand for crop insurance. Moreover, farmer willingness to pay (WTP) for crop insurance was derived. Factors affecting the demand were also examined in a country where crop insurance products are not currently available. Sensitivity analysis was conducted by studying the price-anchoring effect. Design/methodology/approach -Data from a choice experiment (CE) were analyzed with mixed logit models and the distribution of farmer WTP for crop insurance was derived. A split sample approach with varying premium vectors was used to analyze the price-anchoring effect. Findings -Demand was revealed for crop insurance products in Finland. The demand was higher among younger farmers and farms with more arable land. WTP for crop insurance products was very sensitive to the premium interval presented in the CE design.Research limitations/implications -The price-anchoring effect may disrupt the market development of crop insurance products, because insurance companies may take advantage of the lack of awareness among farmers of crop insurance pricing. Practical implications -The insurance product expected indemnity was a more important factor than the deductible in determining farmer WTP for crop insurance. Therefore, the 30 percent deductible level set for subsidized crop insurance products is not an obstacle for the development of such products in the EU. Originality/value -The study applied a well-known method (CE) to crop insurance in a country where these products are non-existent. The split sample approach was used to examine the price-anchoring effect on crop insurance.
Summary Yield variability increases farm income volatility. This volatility is expected to increase as the frequency of extreme weather events intensifies with climate change. Preparation is needed in farm practices, but also in economic risk management on farms. In the EU, new crop insurance schemes are to be founded on public–private partnerships. Member States and the EU will subsidise farmers purchasing crop insurance from private insurance companies or mutual funds. At the same time, the EU is signalling that basis risk, i.e. potential mismatch between insurance pay‐out and actual crop losses at the farm level will not be tolerated. We conducted a feasibility study of area‐yield index insurance in Finland using farm‐level data. Yields between areas likely to be used in insurance policies and individual farm yields are weakly correlated. By determining the optimal cover and scale of area‐yield insurance for farms, we show that flexibility is needed in the rules for subsidised crop insurance. Systemic risks from area‐yield insurance are considerable. Because there is high correlation between area yields, insurance companies may suffer large scale losses in a given year. We suggest co‐operation in the provision of crop insurance at the EU level to enable more effective risk pooling.
The need for efficient risk management has increased in agriculture, as farmers are facing greater risks, for instance, due to climate change, price liberalisation and new plant diseases. The development of yield insurances is ongoing in many EU member countries. In Finland, the northernmost EU country, a government-financed crop damage compensation (CDC) scheme has been abolished. In this study, we analysed how the government´s expenditure would change due to the policy shift and provide insight into the tails of the loss distribution of a crop insurance scheme based on individual farm yields. According to a stochastic simulation model, the mean expenditures for the government as well as the variability in expenditure between years are expected to be lower as a result of the policy shift. The results obtained support the government's decision to terminate the CDC scheme.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
customersupport@researchsolutions.com
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Copyright © 2025 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.