Factors affecting crop insurance decision
a survey among Swedish farmers
Farmers are constantly facing changes, and the exposure to risk requires monitoring these changes. Financial risks, institutional risks, market risks and production risks are the different risk categories that the farmers face. Production risks stems from factors the farmer cannot affect or is beyond his control. The crop?s output is the basis for the primary income of agricultural operations, which is why it is important for farmer to manage their production risk.
A tool to reduce the consequences of production risks is crop insurance. In a global perspective, governments manage production risk in many different ways. Some countries provide compensation for yield loss and some subsidized crop insurance programs. Some countries, including Sweden, have submitted the responsibility to the private sector which provides the agricultural sector with crop insurances.
Swedish farmers have faced a larger variation in yield levels which indicate a higher risk exposure. This may depend on changes in the climate. The range of crop insurance in Sweden is limited to reseeding and hail insurance provided by private companies. Since the Swedish farmer is constantly exposed to risk, an incentive for them is provided to use crop insurance can be observed. Hence the he purpose of this study is to identify the factors that are associated with the Swedish farmers? choice of crop insurance.
To evaluate the Swedish farmers? decision to use crop insurance the expected utility theory is used. A model is developed to evaluate the factors that may affect the choice to purchase or not. The factors affecting crop insurance use have in this study been divided into three different categories; social factors, business related factors and preferences and perceptions. A survey was conducted of Swedish farmers to identify factors that were analyzed with the logit method.
The results show that the statistical significance level differs greatly between different attributes with each category. The business related factors indicate that larger farms and farms with grain production as primary crop to a greater extent use insurance. Farmers with high level of diversification do not use crop insurance to the same extent as less diversified. This indicates that farmers with high risk expose are more likely to acquire insurance. The design of the insurance product is also found to be important for the insurance decision.
Farmers that use insurance perceive that their yield level is higher than the average for their region. They also perceive a higher level of yield risk compared to uninsured farmers. The social factors, age, education and years of farming as well the farmers? risk preferences do not indicate any statistically significance for the crop insurance decision.