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.
|Number of pages||13|
|Journal||Agricultural Economics (United Kingdom)|
|State||Published - Sep 2018|
Bibliographical noteFunding Information:
The authors would like to thank Ashok Mishra and anonymous referees for their helpful guidance and comments, as well as seminar participants from Cornell University, Kansas State University, Oklahoma State University, Purdue University, and University of Minnesota. All errors are our own.
© 2018 International Association of Agricultural Economists
- Climate change
- Crop insurance
- Global warming
ASJC Scopus subject areas
- Agronomy and Crop Science
- Economics and Econometrics