Income insurance in European agriculture

The agricultural risk environment in Europe is changing, for example because of WTO agreements and governments increasingly withdrawing from disaster assistance in case of catastrophic events. In this context, some form of income insurance may be a useful risk management tool for farmers. Insuring farmers' incomes, however, is rather problematical for reasons of asymmetric information and high correlation of the risks amongst the would-be insured, for example risks due to price fluctuations, floods, droughts and livestock epidemics. It is concluded that the most aggregated forms of income insurance that are likely to be feasible include revenue insurance for field crops, especially if there are relevant futures markets and area yield data, and business interruption insurance for livestock commodities. In Europe, only a few such schemes currendy exist; some are purely private, others are subsidised. A somewhat larger involvement of the public sector, for example through public-private partnerships for reinsurance, could extend the availability of income insurance schemes throughout Europe. Governments, however, should tread warily in entering the field of subsidised agricultural insurance, which experience shows is beset with pitfalls. Pilot tests are useful in establishing the attractiveness of income insurance schemes and other income stabilising tools for the various parties involved