Long Term Impacts of Cover Crops on Corn Yield Risk and Implied Changes to Crop Insurance Premiums
Abstract
Conservation practices in agriculture and cover crops specifically occupied significant space in the 2018 farm bill discussion. At the Federal level, cover crops are seen as part of a suite of agricultural conservation practices that can help to minimize runoff risk to natural resources within the runoff/leeching area of crop farms. Cover crops have also been found to maintain soil health and could potentially reduce long run crop yield risks. Yet in the short run, the majority of the benefits from cover crops occur off of the farm (Bergtold et al. 2017). The lack of significant short run returns on the farm means cover crop adoption remains low. Currently, various incentives are in place by federal government agencies such as the Environmental Incentives Program (EQIP), the Conservation Stewardship Program (CSP) and the Conservation Reserve Program (CRP) to reduce the gap in short run returns. Several state level policies also exist specifically to encourage the use of cover crops. The existence of these policies have been met with varying levels of success at encouraging cover crop use. As such, exploring avenues that further encourage the use of cover crops and sustainable practices in general is still highly valuable to current agricultural policy discussions.
Crop insurance has been posited as a potential player in the on farm cover crop adoption issue. Some work has posited that the current structure of the crop insurance program discourages the use of cover crops through a risk management substitution effect (O'Conner 2013). Others have suggested that the program's coverage rules may reduce cover crop use by risk averse farmers (Looker 2017). On the other hand, some have suggested that premium rate discounts may be justified. The reason is that cover crops can potentially decrease long run crop yield risk, conferring savings to the crop insurance program but such savings would not appear in premiums charged to the farmer until several years after cover crop adoption took place. Upfront premium rate discounts may also prove to be a tool to encourage cover crop use. However, while some suggestive evidence exists that cover crops may reduce on farm cover crop use (Connor et al working paper) it is unclear whether the program can play a role in significantly increasing cover crop use through premium rate discounts. This study investigates the long run distributional effects of cover crop use on corn yield and explores the implied crop insurance premium rates based on the crop yield distribution recovered under long run adoption. Analysis in this study is carried out using a 30-year plot level dataset on experimental corn fields in zone 4 of the NRCS cover crop termination zones. Zone 4 covers a significant portion of the corn growing regions of the US and therefore, findings from our study have widespread applicability for one of the more significant cash crops in the US. Findings from the study will be used in a simple cost, benefit framework to determine the relative benefit of cover crop adoption under implied crop insurance premium discount on a representative farm. Preliminary results suggest that long run benefits indeed justify a premium rate discount. However, accounting for the additional costs and risks of cover crop use in the short run, we find that premium rate discounts may be insufficient to overcome the short run hurdles to cover crop adoption. Therefore crop insurance may not be a significant player in encouraging initial adoption of cover crops. This finding has significant implications for the allocation of limited Federal dollars dedicated to conservation in agriculture.- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2019
- Bibcode:
- 2019AGUFMGC31N1393C
- Keywords:
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- 6309 Decision making under uncertainty;
- POLICY SCIENCES & PUBLIC ISSUES