European Economy. Reports and Studies
Income insurance in European agriculture.(623 kB)
(European Economy. Reports and Studies. 02. January 1999.
Luxembourg. 95pp. Tab. Graph. Bibliogr. )
CM-21-99-957-EN-C ISBN: ISBN 92-828-6755-2
Income from farming is usually considered to be rather volatile and price and production risks may increase in the future. Insurance could provide income stabilisation while minimising interference with the functioning of markets. The goal of this report is to examine under what conditions and in what form a farm income insurance scheme might be feasible in the EU, ie. attractive to both commercial insurers and farmers. Taking into account problems of adverse selection, moral hazard and systematic risk associated with the financial soundness of insurance schemes, the report reviews the pros and cons of a spectrum of income measures to be used as a basis for commercial insurance (eg. whole farm, commodity, price, yield insurance). It illustrates through simulations the effects of two specific schemes on farm income stability and discusses their implications for insurers. It finally draws recommendations on the future design of a European scheme, suggesting that market failures would justify a government involvement in reinsurance.