IDEAS home Printed from https://ideas.repec.org/a/ags/agreko/347681.html
   My bibliography  Save this article

Evaluating the long-term effectiveness of crop insurance products to provide cost effective and constant cover for maize producers under stochastic yields and prices

Author

Listed:
  • Maré, Frikkie
  • Grové, Bennie
  • Willemse, Johan

Abstract

The long-term effectiveness of crop insurance products to provide cost effective and constant cover for maize producers against a production risk under stochastic yields and prices was evaluated. Hail occurrence in low and high risk areas was considered as the production risk, with Short-term Crop Hail Insurance (SCHI) and a Contingency Policy (Self-insurance) in the Alternative Risk Transfer (ART) market as insurance options. A financial simulation model was built to simulate the cash flow of a maize enterprise and to calculate the producer’s annual margin after interest and tax. Stochastic Efficiency with Respect to a Function (SERF) was used to rank Net Present Value (NPV) of the margin after interest and tax for different scenarios of Certainty Equivalents (CE’s) and to calculate the Utility Weighted Risk Premium (UWRP) of each scenario. The model could evaluate the effectiveness of crop insurance products. The SCHI was the preferred option in Mpumalanga (high hail risk area) and ART in North West (low hail risk area) based on the cost effectiveness of the options. The ART, however, was not able to provide constant cover at all times and the long term efficiency thereof should be carefully considered before it is applied as the sole hail risk mitigation strategy.

Suggested Citation

  • Maré, Frikkie & Grové, Bennie & Willemse, Johan, 2017. "Evaluating the long-term effectiveness of crop insurance products to provide cost effective and constant cover for maize producers under stochastic yields and prices," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 56(3), July.
  • Handle: RePEc:ags:agreko:347681
    DOI: 10.22004/ag.econ.347681
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/347681/files/Evaluating%20the%20long-term%20effectiveness%20of%20crop%20insurance%20products%20to%20provide%20cost%20effective%20and%20constant%20cover%20for%20maize%20producers%20under%20stochastic%20yi.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.347681?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:agreko:347681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aeasaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.