Revenue Protection for Organic Producers: Too Much or Too Little?
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A framework is developed to examine organic crop insurance established by the Risk Management
Agency (RMA). Given that the 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, the RMA’s fixed-price factor implies
an effective coverage ranging from 43% to 105% depending on the ratio of planting-time organic
to conventional market prices. Results suggest the RMA’s program is likely to induce adverse
selection because the nominal coverage level is likely to deviate substantially from the effective
coverage.