Over the past 15 years unusually hot and dry summers have highlighted the financial vulnerability of European farmers beyond the arid regions of the Mediterranean. European policy makers have responded to increased agricultural production risk by providing premium subsidies from the community’s budget; these act as a risk-management instrument by decreasing the region’s reliance on ad hoc disaster relief.
The FARM project investigates agricultural drought risk management both in a broad European context and more specifically in Austria.
In the US and other countries, subsidized crop insurance has sometimes led to significant economic and environmental problems, and is important therefore to research consequences of crop insurance policy, and its alternatives, across Europe. Austria, as a country where subsidized hail and frost policies have an outstanding penetration rate of 85% and index insurance for grassland and maize has recently been introduced, is well suited as a case study that explores the risks and opportunities of alternative insurance and risk management schemes.
FARM is built around three main objectives:
- To estimate: (1) in the context of climate change, the additional annual costs to the public budget for expanding Austria’s subsidized crop insurance scheme to cover drought risk and (2) the benefits to insurers and farmers (small and large) under different pricing regimes (mutual insurer, monopoly insurer, competitive market);
- To identify factors, including the availability and price of insurance, that motivate or de-motivate Austrian farmers to take on-farm climate adaptation measures;
- Combining the insights from objectives one and two, the third objective is to identify and assess alternative risk-management policy options at the national level for providing income stability for farmers and creating incentives to implement adaptation measures.
The project combines multiple disciplines and areas of expertise, including crop modeling (EPIC model), mathematics and statistics (the copula approach), economics (assessing fiscal and other economic impacts), anthropology (the theory of plural rationality or cultural theory), social empirical research (questionnaire survey), participatory methods and decision analysis (group multi-criteria analysis and robust decision making). FARM investigates probabilistic crop loss and risk management responses tailored to different risk layers (high, medium and low consequence risks) under different climate scenarios. Policy options are scrutinized by eliciting the risk management preferences of farmers, insurers and government authorities.
The continuous involvement of key actors and interest groups, through interviews and workshops, is an integral part of FARM. The research team maintains informal contact with stakeholders, and welcomes questions, ideas, comments, and other feedback.
The three year project is financed by the Austrian Climate Research Program. It is carried out by IIASA’s Risk and Resilience and Ecosystems management programs, with advice and support from the Wharton Risk Management and Decision Processes Center.
- drought insurance factsheet for Austria
- risk management in US and Canada (German)
- drought risk management factsheet for Germany
- crop insurance factsheet for Switzerland
- Dürrerisikomanagement im österreichischen Ackerbau: Synergien und Trade-offs (German)