Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance
Agricultural insurance is by far the most popular risk management tool used in Iran. Despite many years of experience, Iran’s current insurance policy has not managed to protect all producers in the sector. The basic principle of whole-farm insurance consists of pooling all the insurable risks of a...
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MDPI AG
2025-01-01
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| Series: | Agriculture |
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| author | Moharram Ainollahi Ahmadabadi Mohammad Ghahremanzadeh Ghader Dashti Seyed-Ali Hosseini-Yekani |
| author_facet | Moharram Ainollahi Ahmadabadi Mohammad Ghahremanzadeh Ghader Dashti Seyed-Ali Hosseini-Yekani |
| author_sort | Moharram Ainollahi Ahmadabadi |
| collection | DOAJ |
| description | Agricultural insurance is by far the most popular risk management tool used in Iran. Despite many years of experience, Iran’s current insurance policy has not managed to protect all producers in the sector. The basic principle of whole-farm insurance consists of pooling all the insurable risks of a farm into a single policy and overcoming most of the major impediments to existing policies. This study aimed to evaluate the benefits of whole-farm insurance (WFI) in Zanjan province of Iran. This study employed historical farm-level and county-level data from 1982 to 2021 to estimate yield and price density functions and predict future values. Parametric and non-parametric approaches were utilized to calculate farmers’ expected compensation and guaranteed and simulated revenues. The premium rates were then calculated using the PQH simulation and Cholesky decomposition and compared under three scenarios: the single-crop, double-crop, and triple-crop options. Finally, farmers’ welfare benefits were compared under the three scenarios with the no-insurance case. The results demonstrate that WFI provides lower loss ratios compared to yield insurance and crop-specific insurance. Furthermore, producer welfare can be improved when they insure at least one crop compared to no-insurance. For example, the welfare benefits of insuring wheat, barley, alfalfa, wheat–barley, wheat–alfalfa, barley–alfalfa, and barley–alfalfa in terms of cost reduction to producers at 75% coverage are 8.8, 1.8, 2.9, 1.2, 0.9, and 1.8, respectively. Therefore, we recommend that the Iranian Agricultural Insurance Fund adopts WFI as a new risk management tool. This policy has the potential to decrease insurance premiums and administrative costs while improving the certainty equivalents and benefits to farmers through crop insurance. |
| format | Article |
| id | doaj-art-a41815853f094c588f2d5d4a89304d7c |
| institution | Kabale University |
| issn | 2077-0472 |
| language | English |
| publishDate | 2025-01-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Agriculture |
| spelling | doaj-art-a41815853f094c588f2d5d4a89304d7c2025-01-24T13:16:03ZengMDPI AGAgriculture2077-04722025-01-0115218810.3390/agriculture15020188Evaluating Producer Welfare Benefits of Whole-Farm Revenue InsuranceMoharram Ainollahi Ahmadabadi0Mohammad Ghahremanzadeh1Ghader Dashti2Seyed-Ali Hosseini-Yekani3Zanjan Agricultural and Natural Resources Research and Education Center, AREEO, Zanjan 45381-61395, IranDepartment of Agricultural Economics, Faculty of Agriculture, University of Tabriz, Tabriz 51666-16471, IranDepartment of Agricultural Economics, Faculty of Agriculture, University of Tabriz, Tabriz 51666-16471, IranLeibniz Centre for Agricultural Landscape Research (ZALF), 15374 Müncheberg, GermanyAgricultural insurance is by far the most popular risk management tool used in Iran. Despite many years of experience, Iran’s current insurance policy has not managed to protect all producers in the sector. The basic principle of whole-farm insurance consists of pooling all the insurable risks of a farm into a single policy and overcoming most of the major impediments to existing policies. This study aimed to evaluate the benefits of whole-farm insurance (WFI) in Zanjan province of Iran. This study employed historical farm-level and county-level data from 1982 to 2021 to estimate yield and price density functions and predict future values. Parametric and non-parametric approaches were utilized to calculate farmers’ expected compensation and guaranteed and simulated revenues. The premium rates were then calculated using the PQH simulation and Cholesky decomposition and compared under three scenarios: the single-crop, double-crop, and triple-crop options. Finally, farmers’ welfare benefits were compared under the three scenarios with the no-insurance case. The results demonstrate that WFI provides lower loss ratios compared to yield insurance and crop-specific insurance. Furthermore, producer welfare can be improved when they insure at least one crop compared to no-insurance. For example, the welfare benefits of insuring wheat, barley, alfalfa, wheat–barley, wheat–alfalfa, barley–alfalfa, and barley–alfalfa in terms of cost reduction to producers at 75% coverage are 8.8, 1.8, 2.9, 1.2, 0.9, and 1.8, respectively. Therefore, we recommend that the Iranian Agricultural Insurance Fund adopts WFI as a new risk management tool. This policy has the potential to decrease insurance premiums and administrative costs while improving the certainty equivalents and benefits to farmers through crop insurance.https://www.mdpi.com/2077-0472/15/2/188whole-farm insuranceproducer welfarecertainty equivalentrevenue riskparametric methodnon-parametric method |
| spellingShingle | Moharram Ainollahi Ahmadabadi Mohammad Ghahremanzadeh Ghader Dashti Seyed-Ali Hosseini-Yekani Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance Agriculture whole-farm insurance producer welfare certainty equivalent revenue risk parametric method non-parametric method |
| title | Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance |
| title_full | Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance |
| title_fullStr | Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance |
| title_full_unstemmed | Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance |
| title_short | Evaluating Producer Welfare Benefits of Whole-Farm Revenue Insurance |
| title_sort | evaluating producer welfare benefits of whole farm revenue insurance |
| topic | whole-farm insurance producer welfare certainty equivalent revenue risk parametric method non-parametric method |
| url | https://www.mdpi.com/2077-0472/15/2/188 |
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