Tag: risk management

Climate change is putting increasing pressure on agriculture, which might be reduced by paying more attention to risk management, production efficiency and farm investment. This paper describes the interrelationship between crop insurance take-up, technical efficiency and investment in Hungarian farming using a system of simultaneous equations. The empirical analysis is based on farm accountancy data for the period 2001-2019. Results suggest that both technical efficiency and investment have positive and significant effects on insurance take-up. Accordingly, higher technical efficiency and a higher investment rate both lead to increased insurance usage. In terms of its relationship with efficiency, insurance has a positive and significant coefficient, but investment does not have a significant influence on technical efficiency. Where investment is concerned, insurance usage has a positive and significant effect, but the role of technical efficiency is insignificant. Results suggest that policy interventions that stimulate any of the three factors can potentially have additional positive impacts through spill-over effects on other factors. These effects could be further enhanced if, for instance, interventions focusing primarily on insurance take-up also pay attention to investment by differentiating insurance premium subsidies, depending on whether there is an ongoing (or operating) investment that can be linked to weather-related ...

Given the strong dependence of its economic results on natural factors, agriculture is characterised by high exposure to risk. This paper explores the relationship between the prevailing ‘model of agriculture’ in a country and methods of risk management (in particular, insurance schemes). The Czech Republic and Poland are post-socialist countries which are characterised by different models of agricultural development. While agriculture in the Czech Republic is oriented to industrial farming with large farms, Polish agriculture has a bipolar structure that includes both small, family-owned farms and large agricultural holdings. Various approaches to agricultural insurance schemes may arise from the contrasting models of agriculture, and substantial differences in both the demand and supply sides of the crop and livestock insurance markets indicate different policy approaches to the role of agriculture in the economies of the two countries. In both the Czech Republic and Poland, policy options for farm risk management should consider the balance between budget flexibility and the criterion of efficiency (from the perspective of insurers).

This paper seeks to define the relationship between interest rates and decisions to insure among agricultural producers using the financial methodology. The choices are ultimately reduced to two options: to insure or to limit and absorb risk. Each choice produces a complex cash flow that is compared to the alternative and discounted by several factors. The difference between the options produces a quantitative measure of the financial incentive to insure. Some discounting factors of the cash flows follow the key interest rate to an extent for the latter to influence the decision to insure along with demand for insurance. The proposed method is tested on data from the emerging economy of Ukraine and the United States for the period 2002-2011. All participants of agricultural insurance markets can use the proposed methods to maximise efficiency. The research shows that ceteris paribus agricultural insurance requires bigger government subsidies to be viable under higher interest rates. Further empirical research is suggested.