Strategies to manage hail risk in apple production

Abstract

Purpose Hail risk management is essential for successful farm management in German fruit production, particularly because hail events and associated losses have increased in recent years. The purpose of this paper is to conduct a detailed risk analysis comparing different strategies to manage hail risk, taking into account farmers’ risk aversion and farm-specific conditions. Design/methodology/approach Within an expected utility framework, two different strategies for managing hail risk are compared: one belonging to the group of financial instruments (hail insurance) and the other to the group of technical instruments (anti-hail net). A unique data set comprising a ten-year time series of orchard-specific hail damage and hail insurance data is used. Findings For orchards with low local hail risk and low yield potential, not using hail risk mitigation is most efficient. For orchards with high local hail risk and high yield potential, anti-hail nets provide the highest certainty equivalents. For orchards with high local risk, but low yield potential, hail insurance is most efficient. For orchards, with low local risk, but high yield potential, the certainty equivalents are higher for anti-hail net, when the farmer is risk neutral or slightly risk-averse. With increasing risk aversion, hail insurance is most efficient, which can be explained by the greater degree of the instrument’s flexibility. Originality/value The novelty of the study lies in the direct comparison of the risk effects of anti-hail nets and hail insurance in fruit production.

The apple producers' choice between hail insurance and anti-hail nets

“…Lowering the premium subsidy and/or providing monetary incentives for the purchase of anti-hail nets can dramatically change our results, as discussed previously. It is interesting to compare our results with the ones of Porsch et al (2018) andR€ ohrig et al (2018a). Both studies focus on Germany, where insurance is not subsidized whereas nets are.…”

“…Insurance would then be always dominated by anti-hail nets, except for very low levels of damage risk and risk aversion or for very low levels of production value, where no-hedging would then dominate both the competing strategies. If we hypothesize, instead, the introduction of a subsidy on the purchase of anti-hail nets in the 15%-50% range mentioned in Porsch et al (2018), we have a reduction of the EAC of nets between V258 and V860 per hectare. This would imply an upward translation of the CE expected utility of nets of analogous magnitude.…”

“…By examining optimal hedging strategies for German farmers, they find that anti-hail nets are superior than insurance for high risk exposure and for high production potentials. The role of risk aversion, instead, is of modest impact according to R€ ohrig et al (2018a, b), whereas it is an important determinant in favouring hedging instruments according to Porsch et al (2018).…”

“…However, technical devices have not been completely neglected by agricultural economists. Besides the mentioned works of Lin et al (2008) and Barham et al (2011), focusing on irrigation, R€ ohrig et al (2018a) and Porsch et al (2018) analyse anti-hail nets in fruits production. By examining optimal hedging strategies for German farmers, they find that anti-hail nets are superior than insurance for high risk exposure and for high production potentials.…”

An empirical study on spatial–temporal dynamics and influencing factors of apple production in China

“…The areas of production affected by disasters have a significant positive impact on the agglomeration of apple production layout, which is inconsistent with the expected direction of H1. On the one hand, as a result of upgrading and promotion of orchard equipment and infrastructure, the prevention and mitigation ability of apple disaster has increased, and the negative impact of natural disasters on apple production has been minimized [ 18 , 50 ], which is not a key factor affecting farmers’ apple cultivation [ 30 ]. On the other hand, although the disaster probability of apple production in non-appropriate and sub-suitable areas is high, the spill-over effect of the higher relative price of apples in the region, the policy support of industrial poverty alleviation, and the heterogeneity of farmers’ individual rationality induced an increase in the proportions of apple area in the unsuitable and sub-suitable areas, which in turn caused the apple disaster area to have a positive impact on the agglomeration of apple production layout.…”