Are Added Land and New Producer Provisions in Crop Insurance Vulnerable to Abuse? The Case of Insured Texas Cotton Producers
Lovell, Ashley C.
Rejesus, Roderick M.
MetadataShow full item record
Reducing vulnerabilities in the crop insurance program is important to the welfare of Texas cotton (Gossypium hirsutum L.) producers because excessive losses due to the abuse of these vulnerabilities may result in producer premium increases in the future. Cotton farmers will benefit from identifying and reducing program vulnerabilities because it assures that the safety-net structure in U.S. agriculture remains intact and cotton farmers will remain competitive in the world market. The objective of this study was to analyze the added land and new producer provisions in crop insurance and assess whether these provisions are vulnerable to abuse. Based on the current structure of the provisions, the vulnerability of the added land and new producer provisions primarily stems from the informational advantage held by the producer with regards to the inherent productive capacity of his land. A descriptive statistical analysis of crop insurance data from insured Texas cotton producers showed statistically higher loss ratios (loss ratio = indemnity/premium) for producers utilizing the added land and new producer provisions relative to producers using traditional actual production history. The results of this study suggest that the added land and new producer provisions are vulnerable to abuse and have prompted policy makers to continually re-assess, reevaluate, and actually adopt measures to mitigate this vulnerability.