Government spending under alternative yield risk management schemes in Finland

Abstract

The need for efficient risk management has increased in agriculture, as farmers are facing greater risks, for instance, due to climate change, price liberalisation and new plant diseases. The development of yield insurances is ongoing in many EU member countries. In Finland, the northernmost EU country, a government-financed crop damage compensation (CDC) scheme has been abolished. In this study, we analysed how the government´s expenditure would change due to the policy shift and provide insight into the tails of the loss distribution of a crop insurance scheme based on individual farm yields. According to a stochastic simulation model, the mean expenditures for the government as well as the variability in expenditure between years are expected to be lower as a result of the policy shift. The results obtained support the government’s decision to terminate the CDC scheme.