Applying weather index insurance to agricultural pest and disease risks

ABSTRACT

In this paper, we explore the application of weather index insurance to plant pest and disease management strategies using two distinct models: (1) insuring crop loss due to disease incidence (“Crop Insurance”) and (2) insuring the use of pesticides (“Pesticide Insurance”). We find that despite the seeming ease of applying weather-based pest incidence models to an insurance product, insuring plant disease incidence models is presently unsuitable for the insurance market for both scientific and behavioral reasons. However, derivative-like applications of weather index insurance to insure pesticide use offer a means to introduce financial leverage into pesticide usage decisions. Risk management with weather index insurance would thus function as a complement to existing risk management strategies using pesticides, and offer a market-based mechanism for pesticide abatement. We conclude that more interdisciplinary collaboration is needed to develop weather index insurance for remuneration of losses due to plant pests and diseases, but weather index insurance offers a potential mechanism to reduce inefficiencies and negative externalities in agricultural markets if pesticide expenditures are insured instead of crop losses.

KEYWORDS:

• Insurance
• risk
• weather
• pesticide use efficiency
• Karnal bunt
• Stewart's disease
• market-based

Acknowledgments

This manuscript owes a debt of gratitude to many people since the idea was first conceived in 2007. Several people, Leslie Verteramo Chiu, Daniel Osgood and Rachael Goodhue, helped to review earlier versions of this manuscript. Three anonymous reviewers also provided invaluable attention to detail in improving the manuscript to its current form. Lastly, we thank seminar participants at SCC-76 (2010) for their comments and insightful suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Plant disease models are widespread amongst plant pathologists and crop scientists and we refer the reader the University of California State-Wide Integrated Pest Management program website (UC-IPM 2008) as a starting source to understand the breadth and depth of models available. Significantly UC-IPM illustrates the extent to which weather is related to plant pathogens and the emergence of plant disease. The scope of interest in plant disease risk is reflected in the National Plant Diagnostic Network (NPDN) which is comprised of five regional plant diagnostic centers located at Cornell University (NEPDN); Michigan State University (NCPDN); Kansas State University (GPDN); the University of Florida (SPDN); and the University of California, Davis in partnership with the California Department of Food and Agriculture, Sacramento (WPDN). Each regional center coordinates data gathering, diagnostic collaboration, and other activities of member land grant institutions, national agencies, and state departments of agriculture (see NPDN 2008).