Evaluation of alternative farm safety net program combination strategies
Abstract
Purpose
Several farm safety net strategies are available to farmers as a source of financial protection against losses due to price instability, government policies, weather fluctuations and global market changes. Producers can employ these strategies combining crop insurance policies with countercyclical policies for several crops and production areas; however, less is known about the efficiency of these strategies in enhancing profit and reducing its variability. In this study, we examine the efficiency of these strategies at minimizing inter crop year farm profit variability.
Design/methodology/approach
We utilized relative mean of profit and coefficient of variation, to compare counterfactually calculated farm safety net strategies for a sample of 28,615 observations across 2,486 farms and four dryland crops (corn, soybean, sorghum and wheat) in Kansas spanning nine crop years (2014–2022). A no farm safety net strategy is used as the benchmark for every alternative strategy to ascertain whether a policy customization is statistically different from a no farm safety case.
Findings
The general pattern of the results suggests that program combination strategies that have a high-profit enhancement potential necessarily have low profit risk for dryland wheat and sorghum production. On the contrary, such a connection is absent for dryland corn and soybeans production. Low-cost farm safety net strategies that enhance corn and soybeans profits do not necessarily lower profit risks.
Originality/value
This paper is one of the first to use a large sample of actual farm-level observations to evaluate how combinations of safety net programs offered under the Title I (PLC, ARCCO and ARCIC) and XI (FCIP) of the U.S. Farm Bill rank in terms of profit level enhancement and profit risk reduction.
Keywords
Acknowledgements
The authors gratefully acknowledge the Kansas Farm Management Association (KFMA) for providing data and Beocat, the High-Performance Computing (HPC) cluster at Kansas State University (https://beocat.ksu.edu/), for partly providing computing infrastructure for data and model processing. The findings and conclusions in this publication are those of the author(s) and should not be construed to represent any official USDA or US Government determination or policy. This research was supported in part by the U.S. Department of Agriculture, Economic Research Service and the National Institute for Food and Agriculture Award number 2021-67023-33816.
Citation
Gaku, S. and Tsiboe, F. (2024), "Evaluation of alternative farm safety net program combination strategies", Agricultural Finance Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/AFR-11-2023-0150
Publisher
:Emerald Publishing Limited
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