Factors influencing producers' perceptions about the importance of government support programmes in agriculture: application of a semi-parametric ordered response model

Abstract

This article examines factors affecting producers’ perceptions towards the relative importance of government support programmes in agriculture. Specific attention is placed on determining the effect of crop insurance usage on farmers’ views about the importance of government programme payments. Results from a semi-parametric ordered response model shows that producers who use yield- or revenue-based crop insurance products also tend to view government programmes with higher importance, suggesting that crop insurance and direct government support programmes tend to be complements rather than substitutes.

Notes

¹Note that choosing two critical values (or three ‘importance’ categories) in the conceptual framework is an ad-hoc choice to facilitate illustration. The number of critical values (or ‘importance’ categories) can be tailored to be consistent with the ‘importance’ scale used in any survey instrument.

²We recognize that there are other semi-parametric estimators of the ordered probit model (e.g. Lewbel's (2000) estimator and the polynomial-generalized ordered probit model based on Ruud's (1984) work). However, a recent study by Stewart (2005) indicates that, in general, the semi-parametric estimator used here outperforms the other estimators in terms of root mean squared error (RMSE) values.

³Only ‘violently oscillatory’ density functions cannot be approximated using this Hermite series (Gallant and Nychka, 1987).

⁴The condition E(e) = 0 can be shown to imply that γ ₁ = 0 (see Stewart, 2004).

⁵For a detailed derivation of Equation 15, please see the paper by Stewart (2004).

⁶Note that we also ran the empirical model using the mid-points of the debt-to-asset ratio categories, instead of the Loans dummy variable. The resulting coefficient for this variable was insignificant (as is the case with the Loans dummy). The pattern of results was also similar irregardless of whether the mid-points of the debt-to-asset ratio categories or the Loans dummy variable is used. Thus, we opted to simply present the results of the model where the Loans dummy variable is used.

⁷The Actual Production History (APH) crop insurance plan is the ‘traditional’ yield-based crop insurance plan that has been in place in the U.S. for several decades. This insurance contract is an individual yield insurance plan that protects farmers against yield shortfalls if the actual yield falls below a guaranteed yield level (where the guaranteed yield is based on the coverage level). The APH plan is previously called the Multiple Peril Crop Insurance (MPCI) plan since it covers yield losses from various (multiple) perils.