The influence of direct payments on farmers’ hail insurance decisions

Authors

  • Robert Finger,

    Corresponding author
    1. Agri-Food and Agri-Environmental Economics Group, ETH Zürich, Sonneggstrasse 33, 8092 Zürich, Switzerland
    2. Wageningen University, Agricultural Economics and Rural Policy Group, Hollandseweg 1, 6706 KN Wageningen, The Netherlands
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  • Niklaus Lehmann

    1. Agri-Food and Agri-Environmental Economics Group, ETH Zürich, Sonneggstrasse 33, 8092 Zürich, Switzerland
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Tel: 0031-317-4-84876; fax: 0031-317-484736. E-mail address:robert.finger@wur.nl (R. Finger).

Abstract

We analyze determinants of hail insurance use of Swiss farmers, using FADN panel data covering the period 1990–2009. Mixed effect logistic regression models are estimated to identify the most important farm and farmer characteristics that trigger insurance use. In addition, information on local hail risk is taken into account in these models. It shows that larger farms, with specialization in crop production, and with larger local hail risks are more likely to adopt the hail insurance. Moreover, insurance users are usually older and better educated. Since the early 1990s, Swiss agricultural policy has reduced price support and introduced general and ecological direct payments. This has led to a much higher importance of direct payments for farmers’ incomes. Our analysis shows that this development has contributed to decreasing hail insurance adoption rates in Switzerland over the period considered. Our results indicate that the larger the share of direct payments for total farm revenue, the less attractive is insurance as a risk management strategy for farmers. This interdependency should be explicitly considered by agricultural policy in the design of support mechanisms.

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