Agriculture and Agriculture and Green InsuranceGreen Insurance

AliyaAliya HaqHaqLiz HartmanLiz HartmanAleshaAlesha MyersMyers

Risk and AgricultureRisk and Agriculture

Unpredictable conditionsUnpredictable conditionse.g. Weather, Pestse.g. Weather, Pests

Chemicals lessen risksChemicals lessen risksPesticides, FertilizersPesticides, Fertilizers

Conservation practices add riskConservation practices add riskBest Management Plans (Best Management Plans (BMPsBMPs))Integrated Pest Management (IPM)Integrated Pest Management (IPM)

Crop InsuranceCrop Insurance

Government agencies create insurance Government agencies create insurance policiespolicies

Policies sold and serviced by private Policies sold and serviced by private insurance companiesinsurance companiesCompanies subsidized by government Companies subsidized by government (Reinsurance)(Reinsurance)

““Green InsuranceGreen Insurance””Can promote use of BMP and IPMCan promote use of BMP and IPM

PesticidesPesticides

Pesticides and Green Pesticides and Green InsuranceInsurance

BMPsBMPs and Green Insurance Policiesand Green Insurance PoliciesPotential BMP failurePotential BMP failure

Goals of Goals of BMPsBMPs and Green Insuranceand Green InsuranceSave farmers moneySave farmers moneyReduce pesticide inputsReduce pesticide inputsImprove environmental stewardshipImprove environmental stewardship

Case StudiesCase Studies

Corn Rootworm BMP Corn Rootworm BMP insuranceinsurancePotato Late Blight Potato Late Blight insuranceinsurance

Mitchell and Babcock Mitchell and Babcock StudyStudy

IPM and Corn RootwormIPM and Corn RootwormEmpirical evaluationEmpirical evaluation

Parameters measured:Parameters measured:Pest populationPest populationPesticide inputPesticide inputSignal of pest populationSignal of pest population’’s true level s true level

Mitchell and Babcock: Mitchell and Babcock: Findings Findings

Little financial incentive for farmersLittle financial incentive for farmersBenefits do not justify costsBenefits do not justify costsFinancial gain not likely to increase IPM Financial gain not likely to increase IPM adoptionadoptionResults may not apply to all modelsResults may not apply to all modelsAlternativesAlternatives

FeinermanFeinerman, , et al.et al. StudyStudy

Modeling system composed of:Modeling system composed of:Biological componentBiological component

Alternating crop rotations: one or more years of continuous Alternating crop rotations: one or more years of continuous corncornDamage negligible in all other rotationsDamage negligible in all other rotations

Policy componentPolicy componentImpact of two factors: federal crop insurance, insecticide Impact of two factors: federal crop insurance, insecticide restrictionsrestrictions

FarmFarm--level decision componentlevel decision componentModels behavior of farmerModels behavior of farmer

FeinermanFeinerman, , et al.et al. ResultsResultsThree broad insurance scenariosThree broad insurance scenarios

Scenario A: No crop insuranceScenario A: No crop insuranceOptimum activity levels result in highest mean returns Optimum activity levels result in highest mean returns

Scenario B: Crop insuranceScenario B: Crop insuranceFarmer can decide to apply pesticides or notFarmer can decide to apply pesticides or notResult is reduction of pesticide use at most levels of risk Result is reduction of pesticide use at most levels of risk aversionaversion

Scenario C: Crop insurance with pesticide Scenario C: Crop insurance with pesticide restrictionsrestrictions

CrossCross--compliance decreases participation in programcompliance decreases participation in program

FeinermanFeinerman et al.et al.ConclusionsConclusions

Broad AnalysisBroad AnalysisOnly applicable to studyOnly applicable to study’’s conditionss conditionsOverall reduction in pesticide usageOverall reduction in pesticide usageCostly to farmer and to insurerCostly to farmer and to insurerImpact depends upon distribution of risk Impact depends upon distribution of risk aversionaversion

Nitrogen Fertilizers and Nitrogen Fertilizers and the Environmentthe Environment

NonpointNonpoint source pollutionsource pollutionSurface waterSurface waterGroundwaterGroundwater

Best Nitrogen Management Best Nitrogen Management Practices (Practices (BNMPsBNMPs))

TimingTiming--BNMP BNMP Cap on amount of nitrogen Cap on amount of nitrogen applicationapplication

Risk and BNMPRisk and BNMP

Risk of underRisk of under--applicationapplicationRisk of delay for timingRisk of delay for timing--BNMPBNMPInsurance must outweigh risk of lower Insurance must outweigh risk of lower yieldsyieldsFarmers are riskFarmers are risk--averseaverseRisk of BNMP failure prohibits Risk of BNMP failure prohibits adoptionadoption

Nitrogen and Green Nitrogen and Green InsuranceInsurance

Insurance premium depends on probability of Insurance premium depends on probability of BNMP failureBNMP failureInsurance can reduce farmersInsurance can reduce farmers’’ cost of bearing cost of bearing riskriskEspecially important in areas with high yield Especially important in areas with high yield and high fertilizer useand high fertilizer useInsurance feasibility and Insurance feasibility and BNMPsBNMPs

Implications for phosphorus and other fertilizersImplications for phosphorus and other fertilizers

Green Insurance on the Green Insurance on the MarketMarket

Consulting firmsConsulting firmsDevelopment and marketing of Development and marketing of policiespolicies

Insurance CompaniesInsurance CompaniesSome interest from private Some interest from private companiescompaniesDifficulty of agricultural Difficulty of agricultural insurance fieldinsurance fieldReinsurance from the Reinsurance from the governmentgovernment

Green Insurance and the Green Insurance and the GovernmentGovernment

Nitrogen and Phosphorus BMP Endorsement Nitrogen and Phosphorus BMP Endorsement Only offered to corn farmers in WI, PA, MN, IAOnly offered to corn farmers in WI, PA, MN, IA

Rotated corn fields onlyRotated corn fields onlyOnly offered to farmers who already Only offered to farmers who already purchase federal crop insurancepurchase federal crop insurance

Current pilot study by Current pilot study by government, for the 2003 government, for the 2003 crop yearcrop year

Government Pilot StudyGovernment Pilot Study

Sold through private insurance Sold through private insurance companiescompaniesLandLand--Grant universities develop Grant universities develop appropriate appropriate BMPsBMPsCertified crop consultantCertified crop consultantCheck strip and BMP stripCheck strip and BMP strip

Green Insurance: Green Insurance: ConclusionsConclusions

BenefitsBenefitsCrop insurance Crop insurance already establishedalready establishedInsurance reduces Insurance reduces riskriskGreen Insurance Green Insurance promotes BMP promotes BMP adoptionadoptionSaves farmers moneySaves farmers moneyReduces Reduces nonpointnonpointsource pollutionsource pollution

DrawbacksDrawbacksAdministrative costsAdministrative costsInsurance Insurance encourages riskier encourages riskier behaviorbehaviorFederally subsidized Federally subsidized with taxpayer moneywith taxpayer money

ConclusionsConclusions

Not extensively addressed in academic literatureNot extensively addressed in academic literature

Very few realVery few real--world examplesworld examples

Future uncertainFuture uncertain