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Strategies to manage hail risk in apple production

Strategies to manage hail risk in apple production Hail risk management is essential for successful farm management in German fruit production, particularly because hail events and associated losses have increased in recent years. The purpose of this paper is to conduct a detailed risk analysis comparing different strategies to manage hail risk, taking into account farmers’ risk aversion and farm-specific conditions.Design/methodology/approachWithin an expected utility framework, two different strategies for managing hail risk are compared: one belonging to the group of financial instruments (hail insurance) and the other to the group of technical instruments (anti-hail net). A unique data set comprising a ten-year time series of orchard-specific hail damage and hail insurance data is used.FindingsFor orchards with low local hail risk and low yield potential, not using hail risk mitigation is most efficient. For orchards with high local hail risk and high yield potential, anti-hail nets provide the highest certainty equivalents. For orchards with high local risk, but low yield potential, hail insurance is most efficient. For orchards, with low local risk, but high yield potential, the certainty equivalents are higher for anti-hail net, when the farmer is risk neutral or slightly risk-averse. With increasing risk aversion, hail insurance is most efficient, which can be explained by the greater degree of the instrument’s flexibility.Originality/valueThe novelty of the study lies in the direct comparison of the risk effects of anti-hail nets and hail insurance in fruit production. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Strategies to manage hail risk in apple production

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0002-1466
DOI
10.1108/afr-07-2017-0062
Publisher site
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Abstract

Hail risk management is essential for successful farm management in German fruit production, particularly because hail events and associated losses have increased in recent years. The purpose of this paper is to conduct a detailed risk analysis comparing different strategies to manage hail risk, taking into account farmers’ risk aversion and farm-specific conditions.Design/methodology/approachWithin an expected utility framework, two different strategies for managing hail risk are compared: one belonging to the group of financial instruments (hail insurance) and the other to the group of technical instruments (anti-hail net). A unique data set comprising a ten-year time series of orchard-specific hail damage and hail insurance data is used.FindingsFor orchards with low local hail risk and low yield potential, not using hail risk mitigation is most efficient. For orchards with high local hail risk and high yield potential, anti-hail nets provide the highest certainty equivalents. For orchards with high local risk, but low yield potential, hail insurance is most efficient. For orchards, with low local risk, but high yield potential, the certainty equivalents are higher for anti-hail net, when the farmer is risk neutral or slightly risk-averse. With increasing risk aversion, hail insurance is most efficient, which can be explained by the greater degree of the instrument’s flexibility.Originality/valueThe novelty of the study lies in the direct comparison of the risk effects of anti-hail nets and hail insurance in fruit production.

Journal

Agricultural Finance Review – Emerald Publishing

Published: Sep 17, 2018

Keywords: Climate change; Risk management; Expected utility; Anti-hail net; Hail insurance; Historical simulation

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