Regional Yield Insurance for Arable Crops in EU-27

Replaced with revised version of paper 11/18/08.Area yield insurance, index insurance, yield risk, Agricultural Finance, Risk and Uncertainty,

Agricultural Insurance Schemes II

Index insurances, diversely from traditional agricultural insurances, do not refer to the actual farm losses but to the losses evaluated from an index. The study evaluates the feasibility of index insurances for EU and makes a cross-validation based on the yield loss risk calculated from FADN data. Premiums have been estimated for a Regional Yield Insurance (RYI) for FADN regions and a number of arable crops. Some meteorological, agro-meteorological and NDVI indicators were also analysed according to the model of the area yield-tailored insurance. From the statistical analysis the indicators do not explain yields optimally. Due to the strong heterogeneity within the EU regions, a meteorological yield-tailored index could have a better explanation capacity at a more disaggregated level. FADN data are used to compute and map the risk of yield reduction for major field crops and of income reduction by farm type. The cross validation of area yield insurance consisted on the calculation of the risk with FADN data with and without insurance. Results show that the risk reduction capacity of yield area index for the case analysed is not very high, but in some regions the risk can be reduced up to a 68%. The risk reduction capacity of other indexes is expected to be lower than the yield area index. Finally, the study shows that index products efficiency is relatively low at farm level due to the European heterogeneity of climates and geography and to the large geographical scale that had to be used in the study. So, index products could be more efficient for reinsurance that works at aggregated level.JRC.G.3-Monitoring agricultural resource

Regional Yield Insurance for Arable Crops in EU-27

The paper looks at a hypothetical area yield insurance at the level of Farm Accountancy Data Network (FADN) regions: Regional Yield Insurance (RYI). Total premium cost is evaluated for each MS and EU-27 assuming that the whole crop surface for each single arable crop is insured. In order to check the efficiency of RYI for smoothing the farmers’ income, we calculate the farmers’ yield variability from a sample of individual farm FADN income data for two scenarios. The first scenario is the current one without RYI, and the second one is with RYI under the hypothesis of 100% market penetration. These analyses enable us to evaluate the potential of RYI as a farmers’ income stabilizer. Moreover, they provide an insight of the potential of other kinds of index products in the heterogeneous European landscape. Results show that the risk reduction capacity of RYI is not very high for the case analyzed (wheat). However, there are some exceptions where the risk can be significantly reduced

Risk Management and Agricultural Insurance Schemes in Europe

Agricultural producers face a series of risks affecting the income and welfare of their households. These are mainly production risks related to weather conditions, pests and diseases, market conditions, liberalization policies, climate change, etc. In recent years the European Union has been considering a possible integration of risk management in the Common Agricultural Policy (CAP) and is analysing risk and crisis management strategies to provide an improved response to crises in the agricultural sector. The report reviews the agricultural risk management systems in the EU-27 (candidate countries Turkey and Croatia are also analysed) with a special focus on types of agricultural insurance. The study contains data collected by experts or consultants from the different European countries. Many of these data were unpublished. Governments have an important role in helping farmers to face disasters. Usually they provide ex-post aids and sometimes they offer or subsidise insurances. Ex-post aid is either given on an ad-hoc basis, either through compensation schemes or through funds partially financed by the agricultural sector (on a voluntary or compulsory basis). Before the entry into force of the 2006 Regulation (EC, 2006a), each Member State (MS) had adopted its own definition of crisis and disaster for authorising state aids. The revision of the mutual funds, calamity funds and ad-hoc payments existing in European countries shows that about 50% of the annual ad-hoc payments are given for natural disasters like drought, frost, flood and excessive rain, and that in some countries aid is only given for livestock diseases. Several types of agricultural insurance systems exist in each country and key figures describe their technicalities, such as reinsurance, triggers and deductibles. Agricultural insurances are fostered in a number of countries. Government¿s involvement is crucial for insurance development: while private companies insure only hail and fire, the insurance of agricultural systemic risks becomes affordable for farmers only with government subsidies and/or public reinsurance.JRC.G.3-Monitoring agricultural resource