Farm-level crop yield distribution estimated from country-level crop damage

Abstract

Commercial yield insurances are not available for Finnish farmers. However, local legislation and the Common Agricultural Policy (CAP) in the EU are moving towards commercial yield insurances. The crop damage compensation (CDC) programme implemented in Finland will expire within a few years and CAP rules suggest premium support of up to 65% for commercial yield insurances. Regardless of these major changes, Finnish insurance companies have not yet shown great interest in supplying insurance schemes. We strongly believe that this is due to uncertainty over the yields to be insured. Asymmetric information is a well-established phenomenon in the insurance industry. In yield insurances, it results from farmers having better knowledge of their yields than insurance companies. This paper estimates the unknown and latent farm-level crop yield distribution that is consistent with the indemnity frequency realized under the CDC programme implemented in Finland. The frequency of granted indemnity payments reveals the underlying yield density function interest among potential yield insurance companies. The estimated yield distribution is normalized to and compared with the aggregate level yield distribution as well as farm-level observations from various sources. The results reveal that no unambiguous answer exits for insurance company needs.

Adoption of risk management strategies in European agriculture

“…In Ireland, subsidised crop insurance is not available, which may have hampered demand for insurance. In Finland crop insurance is not adopted since the existing Crop Damage Compensation (CDC) scheme was abolished in 2015 as a result of inherent defi ciencies in the CDC system (Myyrä and Jauhiainen, 2012). Most analysed Member States with higher adoption rates have opted for public support to promote demand with the exception of Germany.…”

Government spending under alternative yield risk management schemes in Finland

“…Moreover, the standard deviation and maximum losses for barley, winter wheat and rye are higher in the CDC scheme. According to Myyrä and Jauhiainen (2012), the CDC scheme was considerably affected by moral hazard. Some farms received payments from the CDC scheme very frequently, and there were no incentives for farmers to avoid yield losses if they experienced crop damage.…”

“…Under the CDC scheme, compensation payments were based on area reference yields, but loss inspection was carried out at the farm level, and the scheme did not therefore provide cover for farms operating at high yield levels (Myyrä and Pietola 2011). The CDC scheme was abolished in 2015, not only due to policy shifts to PPP at the EU level, but also because of problems related to the above-mentioned area reference yields and moral hazard Pietola 2011, Myyrä andJauhiainen 2012).…”