Farm Heterogeneity and Leveraging Federal Crop Insurance for Conversation Practice Adoption
Abstract
Leveraging existing Federal policies to target conservation policies rests on the assumptions that(1) farms that use these policies would respond to additional incentives and (2) that the farms
that do respond to additional incentives are the ones that can provide additional “environmental
benefits”. In this study, we analyze the relationship between crop insurance use and farm level
production practices and a novel measure of environmental impact of farms. We provide
evidence that (a) understanding heterogeneity of program participants is key in the success of
leveraging existing policies for conservation adoption and (b) producers that intensively use
Federal crop insurance are more likely to have already adopted conservation practices that also
can improve long-run profitability, such as variable rate application or no-till or crop scouting.
Our analysis is conducted from nationally representative field and farm level data collected in the
Agricultural Resource Management Survey (ARMS) Phase II, for major field crops (crop, soybeans, wheat). We first use an unsupervised machine learning method (factor analysis) to
assess the degree of complementarity between a diverse group of production decisions, including
chemical input use rates. We then develop a novel approach to measure nitrogen (N) balance, a
yield-scaled measure of nitrogen fertilizer’s environmental impact. Using these sets of practices,
we then estimate the relationship between sustainable production practices and crop insurance
use intensity (coverage levels). Conservation practices (and related production practices) that
have strong evidence of being profit maximizing are much more likely to be used by producers
with high crop insurance coverage levels.