Farm-level evaluation of area- and agroclimatic-based index insurance

Abstract

We utilize over 190,000 historical farm-level dryland row-crop yield observations (corn, sorghum, soybeans, and winter wheat) spanning over 7000 Kansas farms from 1973 to 2018 coupled with agroclimatic variables to assess the performance of a broad range of weather- and area-based insurance products. Results showed substantial levels of basis risk across agroclimatic-based indices, limited ability to reduce income variability under fair pricing, and underperformance relative to area-based yield products. Growth-stage specific heat indices for corn and soybeans may offer an effective risk management tool. Implications in the context of current agricultural policy initiatives and climate change adaptation are discussed.