Evaluation of Weather Yield Index Insurance Exposed to Deluge Risk: The Case of Sugarcane in Thailand

Thitipong Kanchai, Wuttichai Srisodaphol, Tippatai Pongsart () and Watcharin Klongdee
Additional contact information
Thitipong Kanchai: Department of Mathematics, Khon Kaen University, Khon Kaen 40002, Thailand
Wuttichai Srisodaphol: Department of Statistics, Khon Kaen University, Khon Kaen 40002, Thailand
Tippatai Pongsart: Department of Statistics, Khon Kaen University, Khon Kaen 40002, Thailand
Watcharin Klongdee: Department of Mathematics, Khon Kaen University, Khon Kaen 40002, Thailand

JRFM, 2024, vol. 17, issue 3, 1-15

Abstract: Insurance serves as a mechanism to effectively manage and transfer revenue-related risks. We conducted a study to explore the potential financial advantages of index insurance, which protects agricultural producers, specifically sugarcane, against excessive rainfall. Creation of the index involved utilizing generalized additive regression models, allowing for consideration of non-linear effects and handling complex data by adjusting the complexity of the model through the addition or reduction of terms. Moreover, quantile generalized additive regression was deliberated to evaluate relationships with lower quantiles, such as low-yield events. To quantify the financial benefits for farmers, should they opt for excessive rainfall index insurance, we employed efficiency analysis based on metrics such as conditional tail expectation (CTE), certainty equivalence of revenue (CER), and mean root square loss (MRSL). The results of the regression model demonstrate its accuracy in predicting sugar cane yields, with a split testing R 2 of 0.691. MRSL should be taken into consideration initially, as it is a farmer’s revenue assessment that distinguishes between those with and those without insurance. As a result, the GAM model indicates the least fluctuation in farmer income at the 90th percentile. Additionally, our study suggests that this type of insurance could apply to sugarcane farmers and other crop producers in regions where extreme rainfall threatens the financial sustainability of agricultural production.

Keywords: crop insurance; weather derivatives; sugarcane yield; rainfall index insurance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/17/3/107/pdf (application/pdf)
https://www.mdpi.com/1911-8074/17/3/107/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:17:y:2024:i:3:p:107-:d:1352802

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().