Crop insurance in transition: a qualitative and quantitative assessment of insurance products

This discussion paper considers insurance as a possible instrument of farm income stabilization and compares several crop insurance products with respect to their applicability in a transition economy using the case of Kazakhstan. The analysis is based on a qualitative evaluation as well a quantitative assessment of selected insurance products. The qualitative analysis reviews the available literature on the topic. The quantitative assessment completes the comparison introducing the findings of a numerical analysis of farm and weather data. -- G E R M A N V E R S I O N: Dieses Diskussionspapier behandelt Ertragausfallversicherung als ein potenzielles Instrument der Stabilisierung der Einkommen landwirtschaftlicher Betriebe. Dabei werden einige Versicherungsprodukte auf ihre Anwendbarkeit in einem Transformationsland (am Beispiel vom Kasachstan) komparativ analysiert. Die Analyse wurde auf der Basis der theoretischen Beiträge zur Entwicklung des Versicherungsmarktes als auch der Ergebnisse einer numerischen Analyse der Wetter- und Betriebsdaten durchgeführt.Risk,insurance schemes,agriculture,Risiko,Versicherungsprodukte,Landwirtschaft

Measuring the dependence structure between yield and weather variables

The design and pricing of weather-based crop insurance and weather derivatives is strongly based on an implicit assumption that the dependence structure between yields and weather variables remains unchanged over time. In this paper, we prove this assumption based on empirical time series of weather variables and farm wheat yields from Kazakhstan over the period from 1961 to 2003. By employing two different methods to measure dependence in multivariate distributions – the regression analysis and copula approach – we reveal statistically significant temporal changes in the joint distribution of relevant variables. These empirical results indicate that greater effort is required to capture potential temporal changes in the dependence between yield and weather variables, and subsequently to consider them in the design and rating of weather-based insurance instruments.weather-based index insurance, dependence structure, copula estimation, Bayesian hierarchical model, Kazakhstan.

Production Risk and Technical Inefficiency in Russian Agriculture

This paper aims to contribute to a better understanding of possible causes of considerable production variability that characterised Russian agriculture during the last decade. The study investigates production risk and technical inefficiency as two sources that influence production variability. Using panel data from 1996 to 2001, an empirical analysis of 443 large agricultural enterprises from three regions in central, southern and Volga Russia is conducted. A production function specification accounting for the effect of inputs on both risk and technical inefficiency is found to describe production technologies of Russian farms more appropriately than the traditional stochastic frontier formulation.production risk, technical efficiency, panel data, Russian agriculture, Production Economics, D81, Q12,

Contributions to the 4th young scientists workshop on agricultural development in Central and Eastern Europe

This Discussion Paper contains the greater part of the contributions to the Young Scientists Workshop on Agricultural Development in Central and Eastern Europe (IAMO, September 4-5, 2006). After last years' positive response, the workshop has been organized for the fourth time and has a solid number of contributions. The aim of this annual event is to give young scientists the opportunity to present and discuss their transition-related research. The following short versions of the workshop contributions serve as a basis for discussion during the workshop, but also offer a cross-sectional overview of current research being carried out by young scientists. Although the issues covered by the workshop contributions are quite diverse, they share a common interest in evaluating the impact of institutional and policy changes on agricultural and rural development at the current stage of transition. Regionally, the contributions focus on the new member states of the European Union, as well as countries of South Eastern Europe. -- G E R M A N V E R S I O N: Dieses Diskussionspapier enthält den größten Teil der Beiträge, die im Rahmen des Workshops zur Agrarentwicklung in Mittel- und Osteuropa für Doktoranden und kürzlich auch Promovierte vorgestellt und diskutiert werden. Dieser Workshop findet zum vierten Mal am IAMO statt, dieses Jahr vom 4. bis 5. September. Ziel der Veranstaltung ist es, Nachwuchswissenschaftlern die Möglichkeit zu geben, ihre Forschungsvorhaben zu präsentieren und zu diskutieren. Die folgenden Kurzfassungen sollen allerdings nicht nur als Diskussionsgrundlage für den Workshop dienen, sondern auch einen kleinen Überblick über die gegenwärtige Nachwuchsforschung im Agrarbereich zu Mittel- und Osteuropa vermitteln. Auch wenn die Workshopbeiträge ein sehr breites Themenspektrum abdecken, beschäftigen sie sich alle mit der Analyse der Wirkung von politischen und institutionellen Änderungen auf die Entwicklung ländlicher Räume und des Agrarsektors im gegenwärtigen Stadium des Transformationsprozesses. Regional konzentrieren sich die Beiträge auf die neuen Mitgliedsländer der Europäischen Union und die Länder Südosteuropas.

MODELLING FARMS' PRODUCTION DECISIONS UNDER EXPENDITURE CONSTRAINTS

Limited budget for the purchase of variable inputs might adversely affect producer's input use decisions and might result in a non-optimal input usage. If expenditure constrains are present and binding, unconstrained profit-maximization is not valid for modelling producers' input use decisions. In this paper we apply the indirect production function approach which describes output maximization subject to a given technology, a set of quasi-fixed inputs and a given budget for the purchase of variable inputs. By employing the indirect production function in the stochastic frontier framework we can estimate producer's output loss due to both expenditure constraints and technical inefficiency. Our estimation results show that most of the study farms were expenditure constrained during the considered period. Expenditure constraints have caused on average a potential output loss of 11 percent. Output loss due to technical inefficiency is quite moderate and averages 18 percent.Indirect production function, SFA, expenditure constraints, technical efficiency, Russian agriculture, Farm Management, Research Methods/ Statistical Methods,

The effect of environmental cross compliance regulations on Swiss farm productivity

This paper analyzes the evolution of Swiss farm productivity during the implementation of environmental policy reforms. We employ a production model formulation with technology parameters defined as the functions of subsidies, as well as individual farm characteristics. Our estimates for two groups of farms – milk-producing and crop farms – show that introducing environmental regulations induced serious changes in the production technology and productivity of inputs, especially of land, labor and fertilizer. The overall effect of the subsidies on the production output has been found negative. At the same time, we find that farms do not use their resources optimally, which indicates some deficiencies in structural adjustments, primarily in the land and labor markets.environmental regulations, productivity analysis, Swiss agriculture., Environmental Economics and Policy, Q120, D240,

АКТУАЛЬНЫЕ АСПЕКТЫ СТРАХОВАНИЯ В СЕЛЬСКОМ ХОЗЯЙСТВЕ

Эта публикация является нашим ответом на многочисленные вопросы и желание коллег из стран СНГ получить больше информации об актуальных тенденциях раз- вития рынка страхования в сельском хозяйстве. В ней мы попытались осветить основные аспекты страхования как одного из инструментов регулирования риска в сельском хозяйстве. Одной из главных наших задач при этом является предоставление читателю информации о сущности и потенциале страхования, проблемах и их возмож- ных решениях, известных на настоящий момент. Для более осведомленного читателя публикация может быть интересной с позиции сравнения отдельных страховых продуктов (схем), наиболее распространённых на сегодняшний день в мире. -- E N G L I S H V E R S I O N: This discussion paper is our response to numerous questions and the desire of our counterparts from the CIS countries to receive more up-to-date information about insurance in agriculture. Accordingly, we have tried to shed light on the main aspects of insurance as one tool of risk management in agriculture. Thus, our purpose is to give the reader information on principles and potential of insurance, its main problems and possible solutions. Additionally, this paper provides a comparative overview of the presently most widespread insurance schemes.риск,страхование,страховые схемы,сельское хозяйство,Risk,Insurance,Insurance schemes,Agriculture

Measurement and Comparison of Risk Reduction by Means of Farm Yield, Area Yield, and Weather Index Crop Insurance Schemes - The Case of Kazakhstani Wheat Farms

We analyse area yield insurance contracts and weather index insurance contracts in terms of risk reduction for wheat farms in Kazakhstan over the period 1980-2002. We combine the common mean-variance approach with a stochastic dominance approach to ensure the consistency of the empirical results with expected utility theory. Results indicate (1) the need for combining both approaches, because for some insurance schemes, the mean-variance results of one-third of the farmers are not necessarily consistent with EU theory. (2) Bootstrapping shows that an expected positive variance reduction is not statistically significant for up to one-third of the farms. Both results indicate that previous methods probably overestimate the effectiveness of crop yield and weather index insurance schemes, in particular for insurance schemes with basis risk. From a practical point of view, (3) area yield insurance based on the county (rayon) yield provides substantially higher variance reduction than reported in the literature, indicating that area yield insurance contracts might be more appropriate in Kazakhstan because of the high systemic yield risk there - an effect of exposure to drought. (4) There are no substantial differences in the results generated by means of different weather indexes. (5) However, compared to farm yield insurance with a low strike yield in order to reduce moral hazard, weather index insurance can be a reasonable alternative for farmers.Crop Production/Industries, Risk and Uncertainty,

Improving the Effectiveness of Weather-based Insurance: An Application of Copula Approach

The study develops the methodology for a copula-based weather index insurance rating. As the copula approach is better suited for modeling tail dependence than the standard linear correlation method, we suppose that copulas are more adequate for pricing a weather index insurance contract against extreme weather events. To capture the dependence structure in the left tail of the joint distribution of a weather variable and the farm yield, we employ the Gumbel survival copula. Our results indicate that, given the choice of an appropriate weather index to signal extreme drought occurrence, a copula-based weather insurance contact might provide higher risk reduction compared to a regression-based indemnification

Measuring the dependence structure between yield and weather variables

The design and pricing of weather-based crop insurance and weather derivatives is strongly based on an implicit assumption that the dependence structure between yields and weather variables remains unchanged over time. In this paper, we prove this assumption based on empirical time series of weather variables and farm wheat yields from Kazakhstan over the period from 1961 to 2003. By employing two different methods to measure dependence in multivariate distributions – the regression analysis and copula approach – we reveal statistically significant temporal changes in the joint distribution of relevant variables. These empirical results indicate that greater effort is required to capture potential temporal changes in the dependence between yield and weather variables, and subsequently to consider them in the design and rating of weather-based insurance instruments