Whole-Farm Revenue Protection as a Factor of Economic Stability in Crop Production

• Main Authors: Željko Kokot, Todor Marković, Sanjin Ivanović, Maja Meseldžija
• Format: Article
• Language: English
• Published: MDPI AG 2020-08-01
• Series: Sustainability
• Subjects: crop production; insurance; revenue; whole-farm; one policy
• Online Access: https://www.mdpi.com/2071-1050/12/16/6349

Crop production is largely unprotected and exposed to a great number of production factors. On the other hand, farmers are exposed to fluctuations in the market prices of their products every year, which often has a negative impact on the profits made. There are various risk management measures in plant production, and insurance is certainly one of the most effective instruments. One of the recent insurance models is Whole-Farm Revenue Insurance (WFRP), which is an American insurance model that has been applied since 2015. The essence of WFRP is to ensure that all crops on the farm are secured against production and market risks with only one policy. The aim of the research in this paper is to present WFRP as an entirely new model of revenue insurance on the example of a typical Serbian farm specializing in crop production. The WFRP model works by determining the insured revenue before the start of the production year. If at the end of the production year, for any reason, the realized revenue falls below the level of insured revenue, the farmer is entitled to indemnification. Due to the drought that hit the region where the analyzed farm is located, the yields were reduced, and thus the expected revenue was also reduced, and the farmer was entitled to damages of $5697. On the other hand, it is the farmer’s obligation to pay $373 to the insurer as a risk transfer fee. The authors proved that even such complex insurance models can be applied in countries such as Serbia, where awareness of the importance of insurance of agricultural production is still not developed.