Agriculture and Green Insurance - Cornell University · Green Insurance Aliya Haq Liz Hartman...
Transcript of Agriculture and Green Insurance - Cornell University · Green Insurance Aliya Haq Liz Hartman...
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Agriculture and Agriculture and Green InsuranceGreen Insurance
AliyaAliya HaqHaqLiz HartmanLiz HartmanAleshaAlesha MyersMyers
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Risk and AgricultureRisk and Agriculture
Unpredictable conditionsUnpredictable conditionse.g. Weather, Pestse.g. Weather, Pests
Chemicals lessen risksChemicals lessen risksPesticides, FertilizersPesticides, Fertilizers
Conservation practices add riskConservation practices add riskBest Management Plans (Best Management Plans (BMPsBMPs))Integrated Pest Management (IPM)Integrated Pest Management (IPM)
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Crop InsuranceCrop Insurance
Government agencies create insurance Government agencies create insurance policiespolicies
Policies sold and serviced by private Policies sold and serviced by private insurance companiesinsurance companiesCompanies subsidized by government Companies subsidized by government (Reinsurance)(Reinsurance)
““Green InsuranceGreen Insurance””Can promote use of BMP and IPMCan promote use of BMP and IPM
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PesticidesPesticides
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Pesticides and Green Pesticides and Green InsuranceInsurance
BMPsBMPs and Green Insurance Policiesand Green Insurance PoliciesPotential BMP failurePotential BMP failure
Goals of Goals of BMPsBMPs and Green Insuranceand Green InsuranceSave farmers moneySave farmers moneyReduce pesticide inputsReduce pesticide inputsImprove environmental stewardshipImprove environmental stewardship
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Case StudiesCase Studies
Corn Rootworm BMP Corn Rootworm BMP insuranceinsurancePotato Late Blight Potato Late Blight insuranceinsurance
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Mitchell and Babcock Mitchell and Babcock StudyStudy
IPM and Corn RootwormIPM and Corn RootwormEmpirical evaluationEmpirical evaluation
Parameters measured:Parameters measured:Pest populationPest populationPesticide inputPesticide inputSignal of pest populationSignal of pest population’’s true level s true level
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Mitchell and Babcock: Mitchell and Babcock: Findings Findings
Little financial incentive for farmersLittle financial incentive for farmersBenefits do not justify costsBenefits do not justify costsFinancial gain not likely to increase IPM Financial gain not likely to increase IPM adoptionadoptionResults may not apply to all modelsResults may not apply to all modelsAlternativesAlternatives
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FeinermanFeinerman, , et al.et al. StudyStudy
Modeling system composed of:Modeling system composed of:Biological componentBiological component
Alternating crop rotations: one or more years of continuous Alternating crop rotations: one or more years of continuous corncornDamage negligible in all other rotationsDamage negligible in all other rotations
Policy componentPolicy componentImpact of two factors: federal crop insurance, insecticide Impact of two factors: federal crop insurance, insecticide restrictionsrestrictions
FarmFarm--level decision componentlevel decision componentModels behavior of farmerModels behavior of farmer
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FeinermanFeinerman, , et al.et al. ResultsResultsThree broad insurance scenariosThree broad insurance scenarios
Scenario A: No crop insuranceScenario A: No crop insuranceOptimum activity levels result in highest mean returns Optimum activity levels result in highest mean returns
Scenario B: Crop insuranceScenario B: Crop insuranceFarmer can decide to apply pesticides or notFarmer can decide to apply pesticides or notResult is reduction of pesticide use at most levels of risk Result is reduction of pesticide use at most levels of risk aversionaversion
Scenario C: Crop insurance with pesticide Scenario C: Crop insurance with pesticide restrictionsrestrictions
CrossCross--compliance decreases participation in programcompliance decreases participation in program
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FeinermanFeinerman et al.et al.ConclusionsConclusions
Broad AnalysisBroad AnalysisOnly applicable to studyOnly applicable to study’’s conditionss conditionsOverall reduction in pesticide usageOverall reduction in pesticide usageCostly to farmer and to insurerCostly to farmer and to insurerImpact depends upon distribution of risk Impact depends upon distribution of risk aversionaversion
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Nitrogen Fertilizers and Nitrogen Fertilizers and the Environmentthe Environment
NonpointNonpoint source pollutionsource pollutionSurface waterSurface waterGroundwaterGroundwater
Best Nitrogen Management Best Nitrogen Management Practices (Practices (BNMPsBNMPs))
TimingTiming--BNMP BNMP Cap on amount of nitrogen Cap on amount of nitrogen applicationapplication
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Risk and BNMPRisk and BNMP
Risk of underRisk of under--applicationapplicationRisk of delay for timingRisk of delay for timing--BNMPBNMPInsurance must outweigh risk of lower Insurance must outweigh risk of lower yieldsyieldsFarmers are riskFarmers are risk--averseaverseRisk of BNMP failure prohibits Risk of BNMP failure prohibits adoptionadoption
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Nitrogen and Green Nitrogen and Green InsuranceInsurance
Insurance premium depends on probability of Insurance premium depends on probability of BNMP failureBNMP failureInsurance can reduce farmersInsurance can reduce farmers’’ cost of bearing cost of bearing riskriskEspecially important in areas with high yield Especially important in areas with high yield and high fertilizer useand high fertilizer useInsurance feasibility and Insurance feasibility and BNMPsBNMPs
Implications for phosphorus and other fertilizersImplications for phosphorus and other fertilizers
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Green Insurance on the Green Insurance on the MarketMarket
Consulting firmsConsulting firmsDevelopment and marketing of Development and marketing of policiespolicies
Insurance CompaniesInsurance CompaniesSome interest from private Some interest from private companiescompaniesDifficulty of agricultural Difficulty of agricultural insurance fieldinsurance fieldReinsurance from the Reinsurance from the governmentgovernment
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Green Insurance and the Green Insurance and the GovernmentGovernment
Nitrogen and Phosphorus BMP Endorsement Nitrogen and Phosphorus BMP Endorsement Only offered to corn farmers in WI, PA, MN, IAOnly offered to corn farmers in WI, PA, MN, IA
Rotated corn fields onlyRotated corn fields onlyOnly offered to farmers who already Only offered to farmers who already purchase federal crop insurancepurchase federal crop insurance
Current pilot study by Current pilot study by government, for the 2003 government, for the 2003 crop yearcrop year
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Government Pilot StudyGovernment Pilot Study
Sold through private insurance Sold through private insurance companiescompaniesLandLand--Grant universities develop Grant universities develop appropriate appropriate BMPsBMPsCertified crop consultantCertified crop consultantCheck strip and BMP stripCheck strip and BMP strip
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Green Insurance: Green Insurance: ConclusionsConclusions
BenefitsBenefitsCrop insurance Crop insurance already establishedalready establishedInsurance reduces Insurance reduces riskriskGreen Insurance Green Insurance promotes BMP promotes BMP adoptionadoptionSaves farmers moneySaves farmers moneyReduces Reduces nonpointnonpointsource pollutionsource pollution
DrawbacksDrawbacksAdministrative costsAdministrative costsInsurance Insurance encourages riskier encourages riskier behaviorbehaviorFederally subsidized Federally subsidized with taxpayer moneywith taxpayer money
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ConclusionsConclusions
Not extensively addressed in academic literatureNot extensively addressed in academic literature
Very few realVery few real--world examplesworld examples
Future uncertainFuture uncertain