USDA Analyzes Crop Insurance Demand

Lizzy SchultzAg Group, Agribusiness, Crop Insurance, Financing, Research, USDA

usda-logo The U.S. Department of Agriculture (USDA) has released a report completed by the USDA Economic Research Service (ERS) on the effectiveness of crop insurance. The report, titled How Do Time and Money Affect Agricultural Insurance Uptake? A New Approach to Farm Risk Management Analysis, analyzes the relationship between wealth, savings, and insurance over time to identify alternative approaches to managing farm risk.

Farmers use crop insurance to protect themselves against risk, primarily against crop failure and low output prices. The U.S. Federal crop insurance program has grown steadily since the mid-1990s, and has become the single largest individual program providing support to producers under the 2014 Farm Act. The growth in crop insurance programs is seen globally, and appears to be driven at least in part by premium subsidies from governments.

This report worked to examine the risk management choices available to farmers, and analyzed the ways that changes in the farmer’s financial environment, particularly in savings and insurance markets, may change insurance demand.

The results of the study show that insurance and savings are substitutes when farm households consider multiple growing seasons, and that the demand for crop insurance drops the longer the time horizon explored. The study also concluded that farmer attitudes toward risk matter less when examining crop insurance demand over multiple years, and that demand for crop insurance among U.S. farmers is significantly responsive to their savings and accumulated wealth.

View the full report from USDA here.