PR - Needs For Risk Hedging In Crop Production Exemplified For Northeast Germany

Clemens Fuchs, Theodor Fock and Joachim Kasten

No 345523, 17th Congress, Illinois State University, USA, July 19-24, 2009 from International Farm Management Association

Abstract: Yield fluctuations as a result of climatic influences can be a significant risk for farms. Marginal soils with a low yield potential in connection with comparatively unfavorable climatic conditions, as found in parts of Northeastern Germany, are particularly affected. The analysis of individual and field-related revenues demonstrates that fluctuations are much higher than regionalized yield averages show. Since farmers know their fields, it is assumed that typical operating strategies to avoid risk, such as rotation planning and adopted cultivation practice, already exist. This study analyzes crop insurance schemes, which currently are not offered in Germany, as an additional tool for risk management. The results of the ex-post analysis and ex-ante simulations show that risk management crop insurance schemes may have significantly positive effects, especially on marginal sites. Such insurance could help to avoid bankruptcy. For the insurance industry crop insurance policies are quite interesting business areas. In particular a revenue insurance scheme could be offered for marginal locations with severe fluctuating yields. Agricultural policy must take into account that the yield insurance scheme discussed here, which claims a yield loss exceeding 30%, is of interest only for a few locations, because such high yield losses were rarely observed at the better sites. For the marginal sites the grant of 60% of insurance premiums is a subsidy of about 10 €/ha, which a company is not likely to refuse.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 16
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ifma09:345523

DOI: 10.22004/ag.econ.345523

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