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13 Jan 2009
Unit:
LEI
 LEI studied the effectiveness of risk management instruments in the agricultural sector, such as animal disease insurance or harvest insurance to cover crop losses caused by bad weather. Thirteen instruments were studied in seven countries, within and outside Europe. Non-subsidised, private insurance does not seem to be very effective because few farmers take out such insurance – with the exception of insurance against hail and storm.
Government subsidisation of private insurance (such as weather insurance) can result in disruptions in the market making the insurance inefficient. With proper planning, however, these dangers can be minimised, and subsidised insurance for the sector and/or the government can be effective.
There are no successful risk management instruments to cover long term price risks. For the short term, futures markets and pools can reduce price risks. In the case of a crisis, ad hoc support by state governments is important. The risks associated with crises cannot be borne by the market without government support and cannot therefore be insured.
Report: Risk management instruments in agriculture; An assessment of efficacy and distortions
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