Assessing effects of federal crop insurance supply on acreage and yield of specialty crops

Abstract

Crop insurance may affect harvested acreage and yield by influencing producers’ behavior such as land allocation and input use. Although specialty crops are a major source of farm income, especially on the U.S. west coast, they have not received as much attention as field crops in previous empirical studies. This paper assesses the effect of moral hazard and adverse selection associated with the federal crop insurance program (FCIP) on the acreage and yield of major specialty crops in California. An econometric method that expands the switching regression model is developed to assess the effect. Results suggest that federal crop insurance can change specialty crop growers’ production responses to climate and soil conditions. The moral hazard effect tends to increase the acreage and yield of the specialty crops, whereas the adverse selection effect tends to have the opposite effect. The overall effect of the FCIP on acreage and yield of specialty crops is found to be moderate.

Crop Insurance, Land Productivity and the Environment: A Way forward to a Better Understanding

“…Subsidized crop insurance may also discourage farmers and producers from adopting risk-reducing technologies. There is sound empirical evidence supporting this hypothesis [79][80][81][82][83]. In particular, according to Miao's study [81], purchase of crop insurance policies may be treated as a tool for short-term risk mitigation.…”

A New Tool for Covering Risk in Agriculture: The Revenue Insurance Policy

“…In the late 1990s, the availability of revenue insurance increased, and by 2006 it represented 57% of all surfaces insured under the federal crop insurance program (Dismukes and Coble 2007). In this regard, some authors have investigated the effects of federal insurance provision on the acreage and yield of specific crops, as outlined by Shi et al (2019), considering five major types of specialty crops in California (apples, wine grapes, dry plums, English walnuts, and dry beans).…”