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Avaluating Alternative Risk Transfer as a Crop Insurance Policy under Stochastic Yields and Prices

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  • Mare, Frikkie
  • Grove, Bennie
  • Willemse, Barend

Abstract

The purpose is to evaluate Alternative Risk Transfer (ART) against Short-term Crop Hail Insurance (SCHI) to provide cost effective and constant cover against hail risk under stochastic yields and prices. A farm financial simulation model was developed to simulate the influence of hail damage and the different crop insurance policies on a maize farm with variable levels of yields and prices. The yield and price data were simulated with the procedure for estimating and simulating multivariate empirical (MVE) probability distributions. The risk efficiency was analysed with stochastic efficiency with respect to a function (SERF). The insurance options with the largest net benefit to the enterprise were ART in the low hail risk area and SCHI in the high hail risk area. It was found that both SCHI and ART might be effective measures for the mitigation of hail damage, depending on the amount of hail risk present in certain area.

Suggested Citation

  • Mare, Frikkie & Grove, Bennie & Willemse, Barend, 2015. "Avaluating Alternative Risk Transfer as a Crop Insurance Policy under Stochastic Yields and Prices," 2015 Conference, August 9-14, 2015, Milan, Italy 212227, International Association of Agricultural Economists.
    • Handle: RePEc:ags:iaae15:212227
    DOI: 10.22004/ag.econ.212227
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    References listed on IDEAS

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    Keywords

    Crop Production/Industries; Risk and Uncertainty;

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