Evaluating the Possibility of Utilizing Whole-Farm Revenue Insurance in Zanjan City

Whole Farm Insurance (WFI) is a new policy that could solve most of the problems involving the traditional insurance. This program protects farmers against loss of revenue in a single policy instead of insuring the crops separately. This paper aimed firstly to design the WFI and then calculate premium rate, sum insured and aggregate limit of indemnity in the case of single-crop and multi-crop choices for farmers in Zanjan city.
 
The purpose of this study was to introduce and design a Whole Farm Insurance for the wheat, barley and alfalfa crops in Zanjan city. Required information including times series data of yields and prices were collected for the period 1982-2014, in addition to farm-level yield data for the period 2008-2014. A two-step method was used for modeling the PDF and CDF of the crops, in order that in the first step, the data were detrended using an appropriate regression model and in the second step, detrended data were used to simulate the probability density functions. In order to model the price series, the real prices of the products were calculated using the producer price index and then detrended. Afterward, the distribution of the prices was estimated using the detrended data. Meanwhile, the DF-GLS and KPSS tests were used for examining the stationarity of the yield and price series.
Then the guaranteed incomes for the products were estimated at different coverage levels using the joint distribution of the yields and prices. In the next step, the expected indemnity, premium rate, insurer’s liability and sum insured were calculated in the single-crop, two –crop and multi-crop cases by employing the PQH simulation method, Cholesky decomposition and Simetar package.
 
The primary analysis of the data indicated that the yields are trend stationary process (TSP) and the prices are difference stationary process (DSP). Furthermore, the premium rates for wheat, barley, alfalfa, wheat-barley, wheat-alfalfa, alfalfa-barley and wheat-barley-alfalfa cases were calculated 20.9, 0.5, 5, 6.7, 1.9, 1.8, and 3.7 percent at the 75 percent coverage level, respectively. The results indicated that the whole farm insurance offers lower premiums in comparison to insuring the crops separately as well as it has less administrative costs. Therefore, it could be an appropriate tool for risk management in agricultural sector.
 
Suggestions
According to the results, it is recommended to the Agricultural Insurance Fund to put the whole farm income insurance in the priority of his administration or to use it as a supplement or substitute for the existing insurance programs.
 
JEL Classification: C15, C53, C63, G22, Q18