this work was provided by the Risk Management Agency, USDA. The views expressed in this article do not necessarily represent those of the University of Maryland or USDA.

This study investigates the role of risk in farmers' acreage decisions for major field crops in the North Central region by revisiting an earlier study by Chavas and Holt. The empirical model is forward-looking and reflects better variable measurement. We test the effects of wealth and revenue risk on supply response. Estimated results are also used to examine the production impact of counter-cyclical payments (CCPs). We find that the effects of risk on supply response are not strong. An increase in initial wealth would lead to greater crop acreage, consistent with decreasing absolute risk aversion. The effect of CCPs on production appears to be negligible.T he 2002 Farm Act offers producers income support and revenue risk reduction through counter-cyclical payments (CCPs). These payments are made available to producers of covered commodities whenever the effective price-the sum of the direct payment rate and the national average farm price or loan rate (whichever is higher)-is less than the target price. 1 CCPs received by producers do not depend on current commodity production, but on historical base acreage and payment yields. CCPs protect producers from down-side price risk and so might have an impact on their production decisions.The potential for CCPs to cause production and trade distortions due to wealth and risk reduction effects has been noted in the ongoing agricultural trade policy debate. A seminal study by Chavas and Holt has been cited as the primary evidence of potential production and trade distortions caused by decoupled payments (such as direct payments) and partially decoupled payments (such as CCPs). The Chavas and Holt study shows that wealth and price risk have statistically significant effects on U.S. corn and soybean acreage decisions, but the impacts are small. However, the study is outdated because data used in the empirical model extend only through the mid 1980s. Since then, the policy environment has evolved away from supply controls and toward greater planting flexibility.

This research investigates the strategic behavior of private crop insurance firms reinsured by the USDA through the Standard Reinsurance Agreement. This arrangement allows the private firm to strategically allocate individual policies into different risk-sharing arrangements. Thus, firm earnings are conditioned upon accurately forecasting policy loss experience. Our analysis begins with models investigating the characteristics explaining the placement of policies into the assigned risk fund. Then a simulation model of the SRA is used to compare the post-SRA returns of actual firm allocations to two alternative allocation strategies based on a aggregate models and a policy-level econometric forecasting model. Copyright 2007, Oxford University Press.

In a series of focus groups during 2001 and 2002, organic farmers from different regions of the United States identified a wide range of risks to their operations. The focus groups were facilitated by the University of Maryland in cooperation with a research team from USDA's Economic Research Service, to explore the risks faced by organic farmers, how they are managed, and needs for risk management assistance. Contamination of organic production from genetically modified organisms was seen as a major risk, particularly by grain, soybean and cotton farmers. Focus-group participants producing grains and cotton-many of whom knew about and had obtained crop insurance-raised concerns about coverage offered, including the need for insurance to reflect the higher prices received for organic crops. Most fruit and vegetable producers participating in the focus groups had little knowledge of crop insurance. When provided with basic information about crop insurance, operators of small fruit and vegetable farms were skeptical about its usefulness for their type of operation.

In recent farm policy debates, proposals for a whole-farm revenue safety net program have been put forward that could provide a farm-income safety net for a wide variety of farming activities. These proposals include income-stabilization accounts and wholefarm revenue insurance. Risk protection from income-stabilization accounts would depend on the reserves in individual accounts and the structure of program benefits. Experience with farm savings accounts in Canada and Australia suggests that lack of adequate account balances and buildup of balances beyond the level required for risk management can reduce program effectiveness. Whole-farm revenue insurance could overcome these problems since coverage would not depend on the farmer's ability to build an account balance and benefits would only be realized when the farmer suffers a drop in income. However, the complexity of factors affecting income variability raises questions about the feasibility of a whole-farm insurance plan.