German farmers’ acceptance of subsidized insurance associated with reduced direct payments
ISSN: 0002-1466
Article publication date: 16 May 2019
Issue publication date: 10 June 2019
Abstract
Purpose
The outstanding reform of the Common Agriculture Policy allows for changes regarding its most criticized component, the direct payment scheme. The purpose of this paper is to investigate farmers’ acceptance of subsidized whole farm income insurance (WFI) and single-crop, multi-peril revenue insurance (RI) that are associated with a reduction of direct payments.
Design/methodology/approach
By applying a generalized multinomial logit model on data of a discrete choice experiment, German farmers’ preferences, expressed as their willingness to pay (WTP), for WFI and RI are revealed.
Findings
The results show a positive WTP for WFI and RI. The average farmer has a higher WTP for WFI than for RI. By increasing the coverage level, the negative influence of a reduction of direct payments on WTP for insurance can be compensated. Individual risk attitude and assessed importance of direct payments for the farm business show a statistically significant influence on the WTP.
Practical implications
The results suggest that, even if direct payments were abolished in order to subsidize WFI or RI, German farmers’ WTP for both insurance products would remain positive. However, to finally assess whether subsidizing insurance is the right means of providing public support, it is necessary to assess whether farmers’ WTP meets the costs for such an insurance scheme.
Originality/value
To the authors’ knowledge, this is the first study investigating German farmers’ WTP for WFI and RI using an experimental approach by explicitly considering the partial to complete replacement of direct payments by subsidized insurance.
Keywords
Citation
Möllmann, J., Michels, M. and Musshoff, O. (2019), "German farmers’ acceptance of subsidized insurance associated with reduced direct payments", Agricultural Finance Review, Vol. 79 No. 3, pp. 408-424. https://doi.org/10.1108/AFR-09-2018-0071
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited