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The purpose of this paper is to analyze the hedging efficiency (HE) of weather index insurances (WII) based on a whole-farm approach. The aim is to identify how different types of WII affect the economic performance risk of real farms in the light of the heterogeneity of farm operations and natural conditions.

Using historic simulation, the HE of various hedging strategies is computed for 20 farms in regions with moderate natural conditions. A priori defined “standardized” WII and hedge ratios as well as ex post “optimized” strategies are analyzed. The latter is identified through a risk programming approach that determines the strike level and hedge ratio that would have minimized the volatility of each farm’s historic total gross margins (TGMs) ex post.

(i) The correlations between the weather indexes and the yields of the farms’ main crop (wheat) do not provide useful insights regarding the whole-farm HE because farms’ performance risk is considerably affected by volatile factors other than wheat yield; (ii) Standardized WII are ill-suited to hedge performance risk for the majority of studied farms; (iii) A considerable positive whole-farm HE could have been obtained on average if farmers had been able to use the “optimized” risk management strategy. Using farm-specific information thus seems to be essential for identifying meaningful hedging strategies.

This study provides added value by analyzing the HE of WII for 20 German crop farms in “moderate” regions. The results show that exemplary tests of WII in extreme conditions provide no decision support for farmers in other regions.

Increasing environmental concerns have placed the need for an enhanced water resources management on the policy agenda. In this context, a restrictive regulation of water withdrawals for irrigation has gained in importance. The purpose of this paper is to investigate how a reduction in water quotas and increased water prices affect risk‐efficient crop choices and the related economic implications for northern German farmers.

The authors apply a whole‐farm risk programming approach to a typical arable farm in northern Germany. By using irrigation field trials, production activities with varying irrigation intensities and inherently incorporated crop yield uncertainty are defined.

In contrast to increased water prices, a reduction in water quotas leads to higher water savings and lower economic disadvantages for farmers. Due to an adjusted portfolio crop choice, as well as irrigation intensity, the reduction in the expected total gross margin is partially offset.

This example ensures volumetric water monitoring at the farm level which, however, remains a major pitfall in many other countries. From a methodological perspective, the crop yield distribution choice might affect the findings. Likewise, the consideration of downside risk in an irrigation context appears to be interesting for future research.

This is the first paper to compare the implications of differentiated water quotas and water pricing schemes suggested by the European Water Framework Directive, while taking risk‐efficient crop portfolio considerations into account. This approach facilitates water reallocation not only between crops, but also in terms of the crop‐specific irrigation intensity. Crop yields are based on a unique panel of micro data rather than expert opinions or simulations.

Farming in Bangladesh is confronted with various types of uncertainties, which contribute to farmers’ income volatility over the years. As a result, cereal, mainly rice, which is a less riskier crop remained dominantly planted in the current farm plan. But the return generated from rice cultivation has not been able to improve the livelihood of the poor, as rice profitability is low compared to some profitable but risky crops like jute and vegetables. To investigate the behavioral pattern of the farmers towards risk, Dhaka division, largely known as central region of Bangladesh, is selected. The prevailing farm plan of Dhaka division is compared with the efficient one at the current level of expected return in order to check whether the current farm plan is risky or otherwise. Quadratic and MOTAD as well as linear programming techniques have been employed for the analysis. The result of the study reveals that the prevailing farm plan in Dhaka division is risky compared to the efficient plan. Since the current return level is low, the study has recommended that more jute and vegetables should be planted to achieve higher remuneration.

The outstanding reform of the Common Agriculture Policy allows for changes regarding its most criticized component, the direct payment scheme. The purpose of this paper is to investigate farmers’ acceptance of subsidized whole farm income insurance (WFI) and single-crop, multi-peril revenue insurance (RI) that are associated with a reduction of direct payments.

By applying a generalized multinomial logit model on data of a discrete choice experiment, German farmers’ preferences, expressed as their willingness to pay (WTP), for WFI and RI are revealed.

The results show a positive WTP for WFI and RI. The average farmer has a higher WTP for WFI than for RI. By increasing the coverage level, the negative influence of a reduction of direct payments on WTP for insurance can be compensated. Individual risk attitude and assessed importance of direct payments for the farm business show a statistically significant influence on the WTP.

The results suggest that, even if direct payments were abolished in order to subsidize WFI or RI, German farmers’ WTP for both insurance products would remain positive. However, to finally assess whether subsidizing insurance is the right means of providing public support, it is necessary to assess whether farmers’ WTP meets the costs for such an insurance scheme.

To the authors’ knowledge, this is the first study investigating German farmers’ WTP for WFI and RI using an experimental approach by explicitly considering the partial to complete replacement of direct payments by subsidized insurance.

This study assesses the potential impact of the European Income Stabilization Tool (IST – a whole farm income risk management [RM] tool) within a farm cooperative specializing in vineyards and operating in a small area of production. The authors assess the conditions under which IST could improve the well-being of the associated farmers and, at the same time, improve financial sustainability. Financial aspects are of particular relevance since the characteristics of the cooperative cause the management of the tool to become potentially risky.

The analysis relies on a balanced panel dataset to report the production and economic characteristics of individual associated farms. This is the basis for simulating the implementation of the IST as described in the current European regulation. The expected utility approach is then used to assess the potential impact on farmers' well-being under different levels of risk aversion and premiums. The analysis of the IST annual cash flow allows for an accurate assessment of its financial sustainability.

The results suggest that the IST can improve farmers' well-being under plausible levels of risk aversion and premiums, making most farmers willing to support its implementation. Furthermore, the tool could be financially sustainable even if implemented in a specialized and geographically concentrated group of farms. In addition, the results suggest that the use of strategies such as the IST could help cope with negative annual balances by treating the financial sustainability of the fund.

The analysis adds to previous research on the IST by accounting for farmers' risk aversion. Furthermore, it is the first analysis that simulates the implementation of this tool in a sector-specific and concentrated group of farms. The results provide useful evidence for those subjects planning to implement the IST in small and specialized farming systems.

The purpose of this paper is to examine factors affecting the use of forage index insurance. Forage is a difficult crop to insure, and index insurance may be well suited for forage insurance and has been implemented in several countries, including Canada, the USA and France. Despite being a promising risk management tool, forage index insurance participation rates in Canada, and other countries are low relative to crop insurance participation rates for grain and oilseed producers.

A survey was conducted with 87 beef and cattle producers from Alberta and Saskatchewan, Canada. A probit regression model was used, and a number of variables were included to examine the use of forage index insurance.

In total, 6 of 11 variables in the model are found to be statistically significant in explaining forage producers’ use of forage index insurance. Results suggest that producers who maintain lower feed reserves are more likely to purchase forage index insurance. Also, producers with higher levels of knowledge of crop insurance and a more positive attitude toward forage insurance are more likely to use forage index insurance. Furthermore, producers are more likely to use forage index insurance if they perceive drought and weather risk as being of greater importance, and if they are younger. The importance of the variable forage index insurance premium price was statistically insignificant. This could be due to the effect of subsidization, reducing the importance of price for the decision to purchase. Similarly, the use of other subsidized risk management policies, including a whole-farm margin policy (e.g. the government program and AgriStability), did not reduce forage index insurance use. A possible explanation for this is that the subsidization of the policies may make it profitable to purchase both, despite the overlapping coverage.

These results may be useful for policy makers interested in increasing forage index insurance participation rates, as forage index insurance participation rates have historically been low relative to grain and oilseed producers.

This study is believed to be one of the first studies regarding the use of forage index insurance by forage producers. Producers can be exposed to catastrophic risks such as drought or other extreme weather events, and forage index insurance may be an effective means to manage these risks. Index insurance determines payments using an index that is correlated to producers’ actual yields. A downside of this method is basis risk, which is the mismatch between the insured index and the producer’s actual yield. Research has focused on basis risk and developing improved methods to reduce basis risk. However, less research has investigated the other important factors that may contribute to forage index insurance use. Producers may have a different risk management environment regarding forage production compared to other farm activities, and these differences have largely not been examined.

The purpose of this paper is to examine the sources and magnitude of variation in accrual adjusted gross farm revenue and farm revenue net of feed purchases on Michigan dairy farms representative of Upper Midwest dairy farms. The paper aims to assess whether adjusted gross revenue‐type insurance instruments meet insurability conditions when applied to dairy farms.

Accrual adjusted dairy farm revenue and revenue net of feed purchased from Michigan dairy farm panel data from 1995 through 2006 were detrended and summarized. Variance decomposition was used to identify sources of variation in adjusted gross revenue and adjusted gross revenue less feed purchases. In‐sample insurance premiums were estimated and Monte Carlo simulations were used to adjust these premiums for out‐of‐sample considerations.

Milk price variation was the largest source of variation while milk production per cow varied little. Farms with smaller herds and those with larger percentages of farm revenue from crop sales had higher relative revenue variability and would trigger a higher frequency of indemnities under a whole farm revenue insurance contract.

Because the data analyzed conclude in 2006, the volatility of the past couple of years is not reflected. Therefore, researchers are encouraged to test the proposed insurance feasibility further with more recent data.

The paper addresses considerations for the development and commercialization of a feasible dairy revenue insurance instrument.

This paper fulfils a need to understand magnitude and source of revenue variation on dairy farms and how insurance might mitigate negative consequences of this variation.

The purpose of this paper is to analyze the effect of the 2008 Farm Bill's average crop revenue election (ACRE) program on the risk‐reducing effectiveness of crop insurance products.

Three crop/region combinations are examined, representing regions with both high and low price‐yield correlation regions. Actual production history (APH) and crop revenue coverage (CRC) insurance instruments are considered separately under the 2002 Farm Bill and under ACRE. Monte Carlo simulations, combined with the copula approach, are used to simulate net wealth distributions and to calculate the corresponding expected utilities. The outcomes are evaluated using certainty‐equivalent wealth based on different risk premium assumptions.

Crop insurance contracts appear to be more effective under the 2002 Farm Bill than under ACRE, especially for crops characterized by low yield‐price correlation. CRC insurance is found to be more effective than APH insurance for all crop/region combinations considered.

The paper only considers a static framework and farm‐level insurance contracts. Further research could investigate how ACRE affects decoupled income support, whether the results change if Supplemental Revenue Assistance is included, or how different the outcomes might be for multiple‐crop farms.

The results suggest that risk‐reducing effectiveness decreases under ACRE and that no reasonable adjustment to APH base price can make APH competitive with CRC for any crop/regions considered.

The risk‐reducing effectiveness of the 2008 Farm Bill's ACRE program is analyzed, and as a methodological contribution the copula approach is used to model the multivariate distribution of yields and prices.

The Agriculture Improvement Act of 2018 directed the United States Department of Agriculture (USDA) Risk Management Association to investigate a policy targeted to farms and ranches that sell through local food markets. However, there is no available research that quantitatively documents the extent to which local food producers utilize Federal crop insurance.

The authors utilize 2013–2016 USDA Agricultural Resource Management Survey data to compare farms and ranches with sales through local food markets to those with and without Federal crop insurance expenditure, as well as the distribution of Federal crop expenditure, across market channels and scales.

There is a little variation in Federal crop insurance expenditure across market channels, defined as direct-to-consumer only sales, intermediated sales, and a combination of direct-to-consumer and intermediated sales. Rather, the results show that scale is the primary predictor of Federal crop insurance expenditure; larger operations are more likely to have nonzero Federal crop insurance expenses.

This article provides the first national research to document descriptive statistics of the utilization of Federal crop insurance by US farms and ranches that utilize local food market channels.