Research Reports
A Study on the Introduction of Agricultural Revenue Insurance for Farm Management Stabilization
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AuthorChung, Wonho
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Publication Date2013.12.30
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Original
Background of Research
As the volatility of quantity and prices of agricultural products increases due to irregular weather events and the expansion of market openness, Korean farmers face management uncertainty increasingly. Our current management stabilization policy is not sufficient because it covers either price fall conditionally only for limited items or quantity loss caused by natural disasters. Furthermore, direct payment for income stabilization considered for several years could not be introduced. All of these motivated us to start to consider revenue insurance.
There have been various opinions on the possibility and timing of introduction of revenue insurance while most people agree that revenue insurance could contribute to farm income stabilization and increase social welfare. The Korean government is planning to introduce the pilot program of revenue insurance in 2015 based on the result of two years of tabletop exercises. Therefore, at this stage we need to review the conditions, plan, and consideration for introducing revenue insurance to find policy implications.
Method of Research
This study reviewed the need for the introduction of revenue insurance, conditions and circumstances, desired effects, farmers' need, proper items, examples of foreign countries, plans and challenges. We reviewed previous studies and materials, collected and analyzed the insurance data, conducted farm surveys and econometric analysis, and considered all possible ideas suggested in seminars, meetings, and conferences.
Research Results and Implications
We found that all conditions for introducing revenue insurance are not fully satisfied but there could be possible ways to introduce it in our circumstances. We also found that revenue insurance will stabilize farm income by reducing the income volatility by 5~40% and increase social benefits by 27.5 billion won. In addition, many of the survey participants are interested in the program. Based on the results, the positive effect will be maximized if we introduce the program smoothly at the possible level.
This study provides eight suggestions for introducing revenue insurance. First of all, a reasonable foundation considering our farm and market conditions should be established. Second, the development of an accurate and systematic insurance database is indispensable. Third, farmer's need should be considered carefully from the stage of system design. Fourth, the revenue insurance needs to be related to current farm management stabilization programs without overlapping or conflicts. Fifth, a loss adjustment measure better than in crop insurance should be prepared for the complicated revenue insurance. Sixth, government subsidy in the reinsurance system is more important than in crop insurance because the contingency of price volatility would not be guaranteed. Seventh, revenue insurance requires more governmental budget so that the items and coverage level should be determined under the budget constraints. Finally, the program should be introduced following a phased road map based on the result of tabletop exercises and pilot programs.
Researchers: Wonho Chung, Kyung-Hwan Choi, Ji-Eun Lim,
Yoon-Jong Kim
Research Period: 2013. 1 ～ 2013. 12
E-mail address: wchung@krei.re.kr
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