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Kishor P. Luitel
Darren Hudson
Thomas Knight
Department of Agricultural and Applied Economics
Texas Tech University
Lubbock, Texas.
Abstract
In the Agricultural Act of 2014 producer can decide on utilize Yield Exclusion (YE) policy on their Actual Production History(APH) every year. The eligible years for a county are determine by Risk Management Agency separately for irrigated and non-irrigated cotton. The YE provision increases producer liability, with an accompanying proportional increase in premium rate. This policy allow producer to have higher liability protection under lower coverage levels. This also increases the number of risk management policy choices available for a producer. The objective of this study is to understand the benefits of the APH-YE on different insurance policies for non-irrigated cotton of Lynn County. A representative non-irrigated cotton farm on Lynn county is constructed to simulated the benefits of APH-YE. Our simulation analysis will examine producer welfare benefit for each common crop insurance policy and with additional shallow loss insurance on an enterprise unit farm. The results suggests Revenue Protection (RP) with Stacked Income Protection Plan (STAX) is the optimal policy choice for non-irrigated cotton farm for parameters used in this study. As a stand-alone insurance choice Revenue Protection has higher benefit. The stand-alone policy has higher benefit than combination with Supplemental Coverage Option (SCO) endorsement. This is due to higher premium price of SCO and county trigger yield. Further, the premium price for SCO endorsement is higher than STAX for same protection level. When YE increase the APH yield by 20%, the producer can purchase 10% lower coverage level and get same maximum benefit as without YE.