Whole-Farm Approaches to a Safety Net

Abstract

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.

Whole Farm Income Insurance

“…Whole farm insurance is a separate and distinct approach to those farm safety nets that focus on crop‐specific insurance, price insurance and stabilization, or enterprise revenue insurance. Explorations into income insurance in Canada and the United States have been conducted by Turvey and Amanor‐Boadu (1989), Hennessy, Babcock, and Hayes (1997), Hennessy, Saak, and Babcock (2003), and Dismukes and Durst (2006), and in a European context by Díaz‐Caneja and Garrido (2009) and Meuwissen, Huirne, and Skees (2003) but none, for a variety of reasons, are satisfactory from an economic point of view. The most serious deficiency, and that which is most explored in this article, is the endogeneity of the insurance decision on crop choices.…”

Strategies to Manage Risk and their Role in Impacting Economic Performance among Farm Households

“…The study found that farms of top-performing farm households were very large, were more likely to be partnerships or family corporations, and that their operators were younger, and had more formal education than bottom performers. Research by D'Antoni, Mishra, and Chintawar (2009) used 2004-2006 ARMS data along with the multinomial logit regression procedure to predict the likelihood of financial stress among young and beginning farmers based on a solvency measure developed by the Economic Research Service. Findings from the study pointed to farmer's age, size of operation, farm ownership, and farm type as important factors in the determination of the financial position of the farm business.…”

“…A potential weakness of these indicators of financial well-being is that both primarily utilize income from farming, which is highly variable due to the vagaries in weather and/or shifts in market conditions and in prices of farm output (see Mishra and Sandretto 2002;and Dismukes and Durst 2006). Additionally, to the extent that the relative solvency-based financial indicator depends also on the debt-to-asset ratio which has a long right tail, this measure of economic well-being hence cannot be calculated for the relatively few farming operations that own no assets (Ahrendsen and Katchova 2012).…”

A Risk Analysis of Adjusted Gross Revenue-Lite on Beef Farms

“…Analysis of various revenue designs includes work by Dismukes and Coble (2006), Dismukes and Durst (2006), Feuz (2009), Llewelyn et al (2003), Miller, Coble, and Barnett (2000), Mishra and Goodwin (2006), Richardson, Smith, and Knutson (2001), Schnitkey, Sherrick, and Irwin (2003), Schumann et al (2001), Stokes, Nayda, and English (1997), and Turvey (2010). Barham et al (2011) used Stochastic Efficiency with Respect to a Function (SERF) analysis to evaluate strategies for managing cotton revenue risk on irrigated cotton farms in Texas.…”

“…Llewelyn et al (2003) also explored the impact of FARRM accounts on net income and variability. Dismukes and Durst (2006) report that an important issue in the design of whole-farm revenue insurance is the complexity of factors that determine farm income and how those factors vary across farms and time. They believe whole-farm revenue insurance is difficult to administer.…”