Revenue Protection for Organic Producers: Too Muchor Too Little

A framework is developed to examine the 2011 pilot program established by the RiskManagement Agency (RMA) to insure organic crops. Given that for insurance purposes RMAlinks organic crop prices to their conventional counterparts by a fixed percentage, we calibrateour model to reflect the organic and conventional corn markets to illustrate the impacts thatsuch pricing potentially has on Revenue Protection coverage under different scenarios. Findingsindicate that at the 75% nominal coverage level, RMA’s fixed price factor implies an effectivecoverage ranging from 45 to 106% depending on what the organic to conventional market priceratio is; resulting, therefore, in lower and higher indemnities compared to those organicproducers should get when considering their idiosyncratic revenue distribution.[...]