CARD Economists Calculate Potential for Group Risk Income Protection

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The USDA's Risk Management Agency has greatly expanded availability of Group Risk Income Protection (GRIP) for 2006. GRIP is a revenue-based crop insurance plan that makes indemnity payments only when the average country revenue for the insured crop falls below the revenue chosen by the farmer (between 90 and 150 percent of expected county revenue). Covered crops now include corn, soybeans, grain sorghum, wheat, and cotton in most major production regions. With this expanded coverage, many farmers and their insurance agents are considering whether GRIP would be a good choice for coverage in 2006 and beyond. Economists at ISU's Center for Agricultural and Rural Development calculated what GRIP would have cost and what it would have paid out had it been available from 1980 through 2004 for Iowa corn (in Poweshiek County), North Dakota wheat, and Texas cotton, and how it would have performed against other revenue insurance plans. According to the calculations, Poweshiek County corn producers would have received $17 more per acre in net indemnities for GRIP than for Revenue Assurance over the historical period. Losses on corn in Iowa tend to be driven primarily by systemic factors, such as widespread drought or excess rainfall, so farm yields and county yields are usually highly correlated. GRIP therefore may provide good risk management benefits for Iowa corn producers. For more information, see "When Is GRIP the Right Choice for Crop Insurance?" in the winter 2006 issue of the Iowa Ag Review. Contact Chad Hart, (515) 294-9911, or Sandy Clarke, CARD communications, (515) 294-6257.

(Released February 2006)