Assessing agricultural risk management using historic crop insurance loss data over the Ogallala Aquifer

Authors: Reyes, Julian Jon; Elias, Emile; HAACKER, ERIN - University Of Nebraska; KREMEN, AMY - Colorado State University; PARKER, LAUREN - University Of California, Davis; Rottler, Caitlin

Submitted to: Agricultural Water Management
Publication Type: Peer Reviewed Journal
Publication Acceptance Date: 1/2/2020
Publication Date: 1/28/2020
Citation: Reyes, J.T., Elias, E.H., Haacker, E., Kremen, A., Parker, L., Rottler, C.M. 2020. Assessing agricultural risk management using historic crop insurance loss data over the Ogallala Aquifer. Agricultural Water Management. 232: Article 106000. https://doi.org/10.1016/j.agwat.2020.106000.
DOI: https://doi.org/10.1016/j.agwat.2020.106000

Interpretive Summary: Much of the agricultural production in the Ogallala Aquifer region relies on groundwater for irrigation. In addition to declining water levels, weather and climate-driven events affect crop yields and revenues. Crop insurance serves as a risk management tool to mitigate these perils. We assess patterns and trends in crop insurance loss data from the U.S. Department of Agriculture Risk Management Agency. Indemnities, or insurance payments, totaled $22 billion from 1989 to 2017 for the 161 counties that overlie the Ogallala Aquifer. We focused on the top ten weather and climate-driven causes of crop loss for the Ogallala, which comprised at least 92% of total indemnities. We found that drought, hail, and heat were leading causes of crop loss, comprising 74% of indemnities in the region. However, these causes of loss varied over space and time. Drought is a significant monthly cause of loss across all seasons, while hail is more prevalent in the spring and summer, and freeze in the early spring and early fall. We found patterns of indemnities that differed across the Ogallala with more losses of hail in the northern portion, and more losses due to drought in the southern portion. We performed a trend analysis of county-level annual loss cost values (the ratio of indemnities to liabilities). Drought and excess moisture showed significant increasing loss cost trends in the western counties of the Ogallala. In contrast, hail showed significant decreasing trends in the northern and eastern portions. These results suggest the northern counties of the Ogallala may perceive hail as a greater risk, and may be better equipped to handle drought losses as compared with the southern Ogallala. Crop insurance loss data play a role in integrating long-term trends with near-term management practices, and providing relevant risk information in producers’ operational to tactical decision making processes.

Technical Abstract: Much of the agricultural production in the Ogallala Aquifer region relies on groundwater for irrigation. In addition to declining water levels, weather and climate-driven events affect crop yields and revenues. Crop insurance serves as a risk management tool to mitigate these perils. We assess patterns and trends in crop insurance loss data from the U.S. Department of Agriculture Risk Management Agency. Indemnities, or insurance payments, totaled $22 billion from 1989 to 2017 for the 161 counties that overlie the Ogallala Aquifer. We focused on the top ten weather and climate-driven causes of crop loss for the Ogallala, which comprised at least 92% of total indemnities. We found that drought, hail, and heat were leading causes of crop loss, comprising 74% of indemnities in the region. However, these causes of loss varied over space and time. Drought is a significant monthly cause of loss across all seasons, while hail is more prevalent in the spring and summer, and freeze in the early spring and early fall. Spatially divergent patterns emerged showing a larger proportion of indemnities in the northern portion of the Ogallala due to hail, with the southern portion showing more drought indemnities. We performed a Mann-Kendall trend analysis of county-level annual loss cost values (the ratio of indemnities to liabilities). Drought and excess moisture showed significant increasing loss cost trends in the western counties of the Ogallala. In contrast, hail showed significant decreasing trends in the northern and eastern portions. These results suggest the northern counties of the Ogallala may perceive hail as a greater risk, and may be better equipped to handle drought losses as compared with the southern Ogallala. Crop insurance loss data play a role in integrating long-term trends with near-term management practices, and providing relevant risk information in producers’ operational to tactical decision making processes.