Crop Insurance Generally Improves Farm Revenues, But Effects Vary by Policy Type

Francis Tsiboe and Dylan Turner

No 401336, ARPC Brief from North Dakota State University

Abstract: Crop insurance is widely used to stabilize farm income, yet its effectiveness varies across policy designs. This study evaluates how different Federal Crop Insurance Program (FCIP) policies affect both average farm revenue and year-to-year revenue volatility. Using FCIP records for 11 major crops from 2011-2022, we simulate net indemnities, defined as indemnities minus producer-paid premiums, for 51 policy and coverage combinations and compare outcomes to an uninsured baseline. We find that crop insurance generally improves farm revenues and reduces income variability: on average, a 1 percent increase in net revenue from insurance is associated with a 2.25 percent reduction in interannual revenue volatility. This stabilizing effect is strongest for policies based on verified on-farm outcomes, such as Yield Protection, Actual Production History, and Revenue Protection, which also account for most program participation. In contrast, index-based policies tend to increase revenue variability due to basis risk, as indemnities do not always align with individual farm losses.

Keywords: Agricultural and Food Policy; Agricultural Finance; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2025-06-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:arpcbr:401336

DOI: 10.22004/ag.econ.401336

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