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Federal Crop Insurance Indemnity and Extreme Weather

2012 November 4

“The farmers around here are *all* saying the weather has been getting weird the last few years.”
— quote from another forum

To examine this proposition, I thought I would look at the payouts from the Federal Crop Insurance program. One readily available graph (AEI) showed payouts increasing at a quick pace. But that was for total payouts and did not take into account the fact that the number of acres were quickly increasing over the first half of that time period as well.

The Federal Crop Insurance program is managed by the Risk Management Agency (RMA). I was able to locate data from 1995-2011 on an FTP server they manage. In addition, they had earlier summary data in some PDF reports that I was able to access. Altogether, I was able to get a summary time series from 1989-2011 and individual crop data for 1995-2011. The crops displayed are from an EPA list of major crops and are displayed as a soft indication of the variability within the data. To remove the effect of the changing acreage over time, I divided the indemnity (payouts) by the acres covered for each year to get a payouts/acre index. And indeed, it is clear that the insurance payouts per acre per year are (significantly) increasing, especially over the last four years. (linear trend, R ‘lm’ p-value: 0.002642)

To explore whether weather was an explanatory factor in this increase, I downloaded annual and seasonal data from NOAA’s Extreme Climate Index which is a composite index of extremes in temperature, precipitation, and wind. There is no significant correlation between annual climate extremes and the crop insurance payouts. There was, however, a correlation coefficient of 0.5 between the payouts and the summer (Jun-Aug) climate extremes, suggesting that it is likely that extreme weather is a component in the rise of crop insurance payouts.

Results as shown above.
Code here.
Data is not turnkey, you will have to adjust.

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