Warming temperatures will likely induce higher premium rates and government outlays for the U.S. crop insurance program

Jesse Tack, Keith Coble, Barry Barnett

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

Abstract

Likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Under a 1°C warming scenario, we find that premium rates at the 90% coverage level will increase by 39% on average; however, there is considerable statistical uncertainty around this average as the 95% confidence interval spans from 22% to 61%. We also find evidence of extensive cross-sectional differences as the county-level rate impacts range from a 10% reduction to a 63% increase. Results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts. Under the 1°C warming scenario, we find that annual subsidy payments for the crop insurance program could increase by as much as $1.5 billion, representing a 22% increase relative to current levels. This estimate increases to 3.7 billion (57%) under a 2°C warming scenario. Our results correspond to a very specific counterfactual: the marginal effect of warming temperatures under current technology, production, and crop insurance enrollments. These impacts are shown to be smaller than the forecasted impacts under a commonly used end-of-century general circulation model for even the most optimistic CO2 emissions projection.

Original languageEnglish
Pages (from-to)635-647
Number of pages13
JournalAgricultural Economics (United Kingdom)
Volume49
Issue number5
DOIs
StatePublished - Sep 2018

Bibliographical note

Publisher Copyright:
© 2018 International Association of Agricultural Economists

Keywords

  • Agriculture
  • Climate change
  • Corn
  • Crop insurance
  • Global warming
  • Q1
  • Q18
  • Q54
  • Risk
  • Yield

ASJC Scopus subject areas

  • Agronomy and Crop Science
  • Economics and Econometrics

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