An Analysis of Factors Affecting Bias and Inefficiency in Area Yield Indexes Based on Aggregated Farm Yields
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The Federal Crop Insurance Products offered for major field crops are either yield-based or revenue-based and offered at either the unit-level (farm or sub-farm) or county-level. The 2014 Farm Bill created the Supplemental Coverage Option (SCO) and Stacked Income Protection Plan (STAX) insurance products. These products provide county-level coverage against “shallow-losses” that can be added to the coverage provided by a unit-level yield or revenue insurance product. Historically, county-level insurance products have been based on National Agricultural Statistics Service (NASS) county yield estimates. However, in recent years NASS has reduced the number of counties for which it reports county yield estimates. As a result, the Risk Management Agency (RMA) is now basing all county-level insurance products (including SCO and STAX) on aggregated (to the county-level) farm-level yield data obtained from unit-level yield and revenue insurance policies sold. This paper analyzes how the performance of county-level insurance products might be impacted by this change. Specifically, the paper analyzes how differences across counties in factors such as unit-level insurance participation, the characteristics of producers purchasing unit-level insurance, and spatial yield correlation affect the performance of county-level insurance products based on aggregated unit-level insurance yield data.