Introduction of the trend-adjusted crop insurance program

Abstract

Purpose Recently, USDA-RMA introduced a Trend Adjusted-Actual Production History (TA-APH) program, which increases APH by a trend factor to cover yield changes over time. The purpose of this paper is to examine the effects of the TA-APH program on farmer participation, coverage election, and risk by analyzing data before and after the program. Design/methodology/approach Since the program was carried out in selected counties, the authors employ a difference in differences approach doing comparisons of insurance participation and coverage levels between eligible and ineligible counties. Findings The authors find that farmers within the counties where the TA-APH program was available experienced an increase in insured acres of 3 percent for corn and 5 percent for soybeans. The authors also find the farmers eligible for the program purchased lower coverage levels relative to those not eligible. However, the magnitude of that negative effect is relatively small, −0.9 percent in corn and −1.3 percent in soybeans. Collectively the evidence shows the TA-APH program does increase the guaranteed yield level mitigating farmer risk. Research limitations/implications The data set used only permitted analysis at the county level, thus the authors could not look at the individual farmer choices. Practical implications The results suggest that if a greater level of farmer risk protection is desired from crop insurance, the authors find that the trend adjustment as implemented was a successful way to achieve this. Originality/value This paper contributes to the literature on the crop insurance by evaluating the program controlling for a non-participating groups, farming experience, liability rates, and subsidy rates. In doing this, it fulfills an identified need to study the actual impact on participation rates and coverage levels elected.