Revenue protection for organic producers: too much or too little
A framework is developed to examine organic crop insurance established by the Risk Management Agency (RMA). Given that RMA links organic and conventional crop prices, the model is calibrated to reflect both markets to illustrate the impacts that pricing has on insurance coverage. Findings indicate that at the 75% coverage level, RMA’s fixed price factor implies an effective coverage ranging from 45% to 106% depending on the ratio of planting-time organic to conventional market prices. Results suggest RMA’s program is likely to induce adverse selection, because the nominal coverage level is likely to substantially deviate from the effective coverage.