Master of Science (MS)
Crop insurance has received a great deal of attention over the past several years. The main interest and focus of analysis on crop insurance has been to evaluate its use and performance as a risk management tool for agricultural producers. Several different types of crop insurance policies are currently available, ranging from minimal yield coverage to revenue coverage. Cost of production crop insurance has been proposed recently as a low cost, safety net type of insurance policy for agricultural producers. This study evaluated the performance of cost of production crop insurance for cotton and rice producers in Louisiana. Crop income and production expenses were simulated on a per acre basis for representative cotton and rice production situations in Louisiana. Cotton yields and production costs for Franklin and Tensas Parishes in Northeast Louisiana and rice yields and production costs for Acadia and Vermilion Parishes in Southwest Louisiana were used to model per acre income and expenses under various insurance coverage levels. Gross income, production expenses, and net income were simulated over a five-year period. Crop yields and market prices were stochastically simulated for 1,000 replications. Results were evaluated by comparing mean net present value of net returns, the percent of time net returns were negative, and the percent of time cost of production crop insurance generates an indemnity payment. General conclusions of the study were that cost of production crop insurance is a low cost, safety net type of insurance which can help support farm income during times of extremely low prices or yields. Farms with below average yields tended to benefit more from the program because of lower average net returns. One of the practical challenges for this type of insurance program would involve the collection of yield and production cost data necessary to operate it at the individual farm level.
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Harding, Erica, "An evaluation of cost of production insurance as an income support tool for rice and cotton producers in Louisiana" (2004). LSU Master's Theses. 44.