Robert Dismukes

RISK AND RISK MANAGEMENT IN ORGANIC AGRICULTURE: VIEW OF ORGANIC FARMERS

In a series of focus groups during 2001 and 2002, organic farmers from different regions of the United States identified a wide range of risks to their operations. The focus groups were facilitated by the University of Maryland in cooperation with a research team from USDAs Economic Research Service, to explore the risks faced by organic farmers, how they are managed, and needs for risk management assistance. Contamination of organic production from genetically modified organisms was seen as a major risk, particularly by grain, soybean and cotton farmers. Focus-group participants producing grains and cotton—many of whom knew about and had obtained crop insurance—raised concerns about coverage offered, including the need for insurance to reflect the higher prices received for organic crops. Most fruit and vegetable producers participating in the focus groups had little knowledge of crop insurance. When provided with basic information about crop insurance, operators of small fruit and vegetable farms were skeptical about its usefulness for their type of operation.

Private Crop Insurers and the Reinsurance Fund Allocation Decision

This research investigates the strategic behavior of private crop insurance firms reinsured by the USDA through the Standard Reinsurance Agreement. This arrangement allows the private firm to strategically allocate individual policies into different risk-sharing arrangements. Thus, firm earnings are conditioned upon accurately forecasting policy loss experience. Our analysis begins with models investigating the characteristics explaining the placement of policies into the assigned risk fund. Then a simulation model of the SRA is used to compare the post-SRA returns of actual firm allocations to two alternative allocation strategies based on a aggregate models and a policy-level econometric forecasting model.

Economic analysis of the standard reinsurance agreement

An economic analysis is presented of the Standard Reinsurance Agreement (SRA), the contract governing the relationship between the Federal Crop Insurance Corporation and the private insurance companies that deliver crop insurance products to farmers. The paper outlines provisions of the SRA and describes the modeling methodology behind the SRA simulator, a computer program developed to assist crop insurers and policy makers in assessing the economic impact of the Agreement. The simulator is then used to analyze how the SRA affects returns from underwriting crop insurance. The results are presented in aggregate and also at the regional and individual company levels.

Producer behavior in the presence of an income stabilization program

Passage of the 1996 Farm Bill marked a dramatic departure in federal farm policy as the longstanding deficiency payment program was replaced with non‐risk responsive transition payments. In light of the departure, subsidized savings has been proposed as a mechanism to provide risk protection to agricultural producers. Using Canada’s National Income Stabilization Account (NISA) program as an example of a subsidized savings program, a stochastic programming model of income stabilization is developed. The model is then used to investigate the optimizing behavior of a typical Midwestern crop producer. The results suggest a fair amount of program design flexibility exists, and that the government can use this flexibility to stimulate initial and continual participation while minimizing capital outlays.