Rethinking Crop Insurance in the Time of Pandemic: Risk and Uncertainty

Apr 03, 2020

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By Jeff Schahczenski

I have recently been awakened to a re-evaluation of risk and uncertainty. Going to the grocery store has—hopefully only for a short time—become more risky. I also have been thinking more and more about how our personal and societal understanding and measurement of uncertainty is changing. It is now more risky to go to the grocery store because of the increased level of uncertainty that we will arrive home healthy. Have these changes in risk and uncertainty brought on by the COVID-19 pandemic impacted the need and desire to re-examine crop insurance?

Federally subsidized crop insurance fundamentally address two categories of risk. First, there is production risk, which is based on the uncertainty of yield related to disruption of the normal growth of crops and livestock as affected by weather, disease, pests, and other factors. This is the most common form of crop insurance, referred to generally as multi-peril insurance. This risk does not seem likely to be largely impacted by the pandemic.

The other major risk category is called price or market risk and is caused by the uncertainty of what the price of the product will be at the time it is produced and ready for sale. This risk also sometimes includes the uncertainty of the costs of inputs needed to produce the product, since this risk is also market-based. These risks will likely be impacted significantly by the pandemic.

Fortunately, at least for a major segment of agriculture producing key commodity crops such as corn, soybeans, wheat, and cotton, there is widely available revenue protection that covers both production (yield) and market (price) risks. Unfortunately, there are also many types of crops and livestock products for which revenue insurance is not available at all or not available in the county in which the farmer farms. For example, in California in 2019, only about 1,600 of the 32,590 policies sold were revenue-based, leaving much of California agriculture without protection related to market or price risk. [1]

The exception to this case is the unique policy known as Whole-Farm Revenue Protection (WFRP), which does provide revenue protection based on the historic revenue history of a whole farm rather than of a specific crop or livestock product. Though available nationwide, this policy has not been widely utilized because of several factors which NCAT and others have been working to improve. Nonetheless, if price or market risks continue to rise over the next few years, WFRP may become an option to consider for the many producers of crop or livestock products for which revenue insurance is not available.

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