Risk management instruments

How do farmers effectively protect themselves against risks and the consequences of damaging events? What can agricultural policy makers contribute to improve preparedness, management and adaptation to changing risks?

Farmers have a variety of on-farm and off-farm risk management tools at their disposal. We investigate the risk reducing potential of already widespread as well as new risk management tools under changing weather and market conditions. In particular, we analyse the opportunities and limitations for promoting risk management through agricultural policy. For which risk factors can policy makers remove existing barriers to improve the effectiveness of farm risk management? Under which conditions could undesirable side effects occur, e.g. distortions of competition, negative environmental effects or a crowding out of other farm risk instruments? How should a subsidy be designed to support adaptation to climate change instead of providing incentives to maintain or even expand high-risk production activities?

The work at the Thünen Institute focuses on damage- and index-based insurance against extreme weather events, the income stabilization instrument of EU agricultural policy, and tax measures. One focus is the analysis of state emergency aid and compensation for farmers in the event of natural disasters and extreme weather events. These were granted in the past after severe droughts, floods and late frost events. In principle, there is a high level of social acceptance in Germany for government aid for those affected by 'catastrophic' events. Nevertheless, emergency aid is not without controversy. We investigate how the design of aid affects the recipient group and public budgets, how the risk of crowding out private provision can be reduced, and how aid can provide stronger incentives for adaptation to climate change.