Mohring Crop Insurance and Pesticide Use

The Effects of Crop Insurance on Pesticide Use
Robert Finger*, Niklas Möhring*, Tobias Dalhaus*, Geoffroy Enjolras ǂ
*ETH Zürich
ǂUniversité Grenoble-Alpes nmoehring@ethz.ch
Placeholder for organisational unit name / logo
Niklas Möhring | Oct 3rd, 2016 | 1
(edit in slide master via “View” > “Slide Master”)
Pesticide Use and Insurance Systems
on the Top of European AgPolicy
 Pesticide use on the top of  Risk management tools like

agricultural policy in Europe insurances increasingly
(Lefebvre et al. 2015; Chabé-Ferret and Subervie
2013)
subsidized in Europe
(Meuwissen et al.,2013; El Benni et al., 2015; Bardají
 National Action Plans et al. 2016)
introduced in the EU  New, innovative tools are

 Pesticide taxation schemes developed (Norton et al., 2016)
introduced in four EU countries
(Böcker and Finger, 2016)
Dependencies in
policies?

Pesticide use and Insurance uptake potentially
linked through three channels
1. Insurances claimed to be substitutes for pesticides

(example revenue insurance)
 intensive margin effect (Mishra et al. 2005)
2. Insurance uptake might influence land use decisions and

therefore pesticide use
 extensive margin effect (Wu, 1999)
3. Decisions of pesticide use and insurance uptake both

determined by risk preferences and perceptions
(example hail insurance) (Waterfield and Zilberman, 2012; Menapace et al. 2016)
Literature: Ambiguous effects of insurance
uptake on pesticide use found
Effect Pesticide type Case study Paper
Yield Insurance:
Insecticide Maize in Iowa Feinerman (1992)
Maize in ten states oft he Horowitz and Lichtenberg
Herbicide, Insecticide
USA (1993)
Chemical Inputs Field crops in Kansas Smith and Goodwin (1996)
Accounts for land
Chemical Inputs Field crops in Nebraska Wu (1999) use decisions
Maize, soy bean in the
Chemical Inputs Corn Belt; Wheat and rye Goodwin et al. (2004)
in the Great Plains
n.s. PPP, Chemical Inputs Wine in France Aubert and Enjolras (2014)
Revenue Insurance
n.s. PPP Wheat in the USA Mishra et al. (2005)
Hail Insurance
PPP Rape seed in France Chakir and Hardelin (2014)
Legend: , , n.s. indicate significant increasing, decreasing or no significant effect of insurance on pesticide
use. Goodwin et al. (2004) find mixed evidence depending on the case study.

Research questions
 Does crop insurance influence pesticide use?
a. Do extensive margin effects play a role?
b. Do results differ w.r.t. different insurance systems (case studies

for France and Switzerland)?
c. Does the specification of pesticide use (monetary units, physical

units, pesticide types) matter?

Conceptual and econometric
framework
1. Land use decision/ 1. System of land use equations
Insurance uptake (acreage of four field crop groups)
and insurance use equation (binary)
Method: Simulated Maximum
Likelikood Estimation (Roodman, 2009)
Predicted values
Influence?
as instruments
(Schoengold et al.,2006)
2. Pesticide use 2. Effect of predicted land use/

insurance uptake on pesticide use
(3 different specifications tested)
*Source of symbols used: OCHA
Data overview
Swiss dataset French dataset
Data field-level data*, bookkeeping data and merged FADN data and weather
(year 2010) weather data data
Sample size 154 farms 2704 farms
Insurance type hail insurance (not subsidized) multiperil insurance (max.

subsidization of 65%)
Pesticide expenditures, physical units (overall and expenditures
measures in types)
Group of crops grassland, intensive cereals, extensive cereals, root crops
 Explanatory variables 1st step:

lagged land use, lagged insurance uptake, farm- and farmers’ characteristics,
climate conditions (long-term), climatic risks
 Explanatory variables 2nd step:

predicted land use, predicted insurance uptake, farm- and farmers’ characteristics,
weather (current year), fertilizer use

*Data
(edit in slide master via “View” > “Slide Master”) from central evaluation of agri-environmental indicators. Niklas Möhring | Oct 3rd, 2016 | 7
Key results 1st step:
land use and insurance uptake decisions
 Feedback effects of lagged land use and insurance

decisions (both samples)
 Linkages between crops (rotation)
 Effect of climatic conditions on land use (both samples)
and insurance uptake (only French sample)
 Extensive margin effect of insurance (only Swiss sample)
– seems to depend on insurance system

Key results 2nd step:
pesticide use decisions (different specifications)
 Positive significant effect of insurance on pesticide
expenditures (French sample)
 Positive significant effect of insurance on fungicide
quantities (Swiss sample – strong subjective component
in fungicide application: Ramseier et al.,2016)
 Positive correlation between herbicide, fungicide and
insecticide use (Swiss sample)
 Positive interactions between pesticide and fertilizer use
(both samples)

Conclusions
 Allignement of agricultural policies needed:

 Interdependency of pesticide use and insurance uptake (extensive
margin effect)
 Interaction of fertilizer and pesticide use
 Analysis of interrelation between insurance and pesticide

use is sensitive to the specification of pesticides
 Evidence that risk preferences and attitudes matter for

pesticide use (and insurance uptake)

Thank you for your attention!
Contact: nmoehring@ethz.ch
www.aecp.ethz.ch
Literature I
• Aubert, M., & Enjolras, G. (2014). The Determinants of Chemical Input Use in Agriculture: A Dynamic
Analysis of the Wine Grape-Growing Sector in France. Journal of Wine Economics, 9(1), 75.
• Bardají, I., Garrido, A., Blanco, I., Felis, A., Sumpsi, J.-M., García-Azcárate, T., Enjolras, G., and Capitanio,
F. (2016), "State of Play of Risk Management Tools Implemented by Member States During the Period 2014-
2020: National and European Frameworks", European Parliament, 146 pages.
• Böcker, T., & Finger, R. (2016). European Pesticide Tax Schemes in Comparison: An Analysis of
Experiences and Developments. Sustainability, 8(4), 378.
• Chabé-Ferret, S., & Subervie, J. (2013). How much green for the buck? Estimating additional and windfall
effects of French agro-environmental schemes by DID-matching. Journal of Environmental Economics and
Management, 65(1), 12-27.
• Chakir, R. & Hardelin, J. (2014). Crop Insurance and pesticide use in French agriculture: an empirical
analysis. Review of Agricultural and Environmental Studies, 95(1), 25-50.
• El Benni, N., Finger, R., & Meuwissen, M. P. (2015). Potential effects of the income stabilisation tool (IST) in
Swiss agriculture. European Review of Agricultural Economics, jbv023.
• Feinerman, E., Herriges, J. A., & Holtkamp, D. (1992). Crop insurance as a mechanism for reducing
pesticide usage: a representative farm analysis. Review of agricultural economics, 14(2), 169-186.
• Goodwin, B. K., Vandeveer, M. L., & Deal, J. L. (2004). An empirical analysis of acreage effects of
participation in the federal crop insurance program. American Journal of Agricultural Economics, 86(4),
1058-1077.
• Horowitz, J. K., & Lichtenberg, E. (1993). Insurance, moral hazard, and chemical use in agriculture.
American journal of agricultural economics, 75(4), 926-935.
• Lefebvre, M., Langrell, S. R., & Gomez-y-Paloma, S. (2015). Incentives and policies for integrated pest
management in Europe: a review. Agronomy for Sustainable Development, 35(1), 27-45.
Literature II
• Menapace, L., Colson, G., & Raffaelli, R. (2016). A comparison of hypothetical risk attitude elicitation
instruments for explaining farmer crop insurance purchases. European Review of Agricultural Economics,
43(1), 113-135.
• Meuwissen, M. P., Assefa, T. T., & Asseldonk, M. A. (2013). Supporting insurance in European agriculture:
Experience of mutuals in the Netherlands. EuroChoices, 12(3), 10-16.
• Mishra, A. K., Nimon, R. W., & El-Osta, H. S. (2005). Is moral hazard good for the environment? Revenue
insurance and chemical input use. Journal of environmental management, 74(1), 11-20.
• Norton, M., van Sprundel, G. J., Turvey, C. G., & Meuwissen, M. P. (2016). Applying weather index
insurance to agricultural pest and disease risks. International Journal of Pest Management, 1-10.
• Roodman, D. (2009). Estimating fully observed recursive mixed-process models with cmp. Available at
SSRN 1392466.
• Schoengold, K., Sunding, D. L., & Moreno, G. (2006). Price elasticity reconsidered: Panel estimation of an
agricultural water demand function. Water Resources Research, 42(9).
• Smith, V. H., & Goodwin, B. K. (1996). Crop insurance, moral hazard, and agricultural chemical use.
American Journal of Agricultural Economics, 78(2), 428-438.
• Waterfield, G., & Zilberman, D. (2012). Pest management in food systems: an economic perspective. Annual
Review of Environment and Resources, 37, 223-245.
• Wu, J. (1999). Crop insurance, acreage decisions, and nonpoint-source pollution. American Journal of
Agricultural Economics, 81(2), 305-320.
Classification of land use categories
Major crops
Group Switzerland France Comment
I (Grassland) Both permanent Both permanent Grassland in total covers more than 70% of
and artificial and artificial agricultural area in Switzerland. Artificial
meadows meadows meadows cover more than 12% of total
acreage. (SBV 2014). For France, the total
grassland covers 42% of agricultural area and
artificial meadows play a minor role (3%).1
II (Intensive Wheats, barley, Wheats, barley,
cereals) other cereals other cereals
III Extensively Maize In Switzerland, farmers receive direct
(Extensive produced wheat payments to produce cereals without use of
cereals) and barley, all pesticides, except herbicides, which is
maize used by about 50% of all cereal producing
farms (Finger and El Benni, 2013).
IV (Root Potatoes, sugar Sugar beet,
crops) beet sunflower,
rapeseed, fodder
beet, potatoes
1
Source: http://www.developpement-durable.gouv.fr/

Coefficient estimates 1st stage: French sample
Grassland (1) Wheat Wheat Foliage Insurance
Intensive Extensive crops uptake (5)
(2) (3) (4)
Lag 1.06 *** 0.13 0.06 0.10 X
Grassland (0.04) (0.08) (0.05) (0.06)
Lag Wheat 0.08 * 1.00*** 0.10* 0.24*** X
Intensive (0.04) (0.09) (0.05) (0.07)
Lag Wheat 0.06 0.18** 1.06*** 0.09 X
Extensive (0.04) (0.08) (0.06) (0.07)
Lag Root 0.01 0.33*** 0.01 0.94*** X
crops (0.04) (0.09) (0.05) (0.07)
Lag Ha -0.06 -0.11 -0.06 -0.10* 0.00***
Total (0.04) (0.08) (0.05) (0.06) (0.00)
Share 5.09*** -1.53* 2.34*** -11.14*** -0.57***
Animals (0.75) (0.88) (0.63) (1.16) (0.11)
Age -0.05 ** -0.05** -0.01 -0.05 -0.00
(0.02) (0.03) (0.02) (0.03) (0.00)
Education -0.33 -0.36 0.16 0.07 -0.05
(0.25) (0.25) (0.17) (0.26) (0.04)
5-year -0.13 -0.61*** 0.13 0.48* X
temp. avg. (0.15) (0.18) (0.14) (0.26)
5-year 0.00 -0.00 -0.00 -0.00 X
prec. Avg. (0.00) (0.00) (0.00) (0.00)
Lag X X X X 2.50***
Insurance (0.07)
Weather X X X X 0.01**
related (0.00)
hazards
Log Asset- X X X X 0.075**
Debt Ratio (0.03)
Constant -3.48 12.24*** -3.49 -4.34 -1.12***
(2.55) (12.87) (2.57) (3.86) (0.30)
Numbers in parentheses are robust standard errors. *,**,*** indicate significance level of 10%, 5% and 1%,
respectively.
Coefficient estimates 1st stage: Swiss sample
Grassland (1) Wheat Wheat Foliage Insurance
Intensive Extensive crops uptake (5)
(2) (3) (4)
Lag 0.42 0.05 0.65 0.03 X
Grassland (0.39) (0.29) (0.29) (0.17)
Lag Wheat 0.10 0.45 0.01 -0.09 X
Intensive (0.24) (0.32) (0.27) (0.18)
Lag Wheat 0.31 0.30 0.20 0.20 X
Extensive (0.41) (0.32) (0.31) (0.19)
Lag Root 0.51 0.36 0.34 0.47** X
crops (0.52) (0.44) (0.38) (0.24)
Lag Ha -0.38 -0.09 0.00 0.04 0.03**
Total (0.37) (0.26) (0.27) (0.17) (0.01)
Share 5.81 0.45 1.37 -9.00*** -0.18
Animals (4.24) (3.09) (1.97) (1.79) (0.51)
Age -0.03 0.01 0.04 -0.07* 0.00
(0.09) (0.08) (0.04) (0.04) (0.01)
Education -5.56*** 0.63 -0.17 2.46*** 0.20
(1.77) (1.46) (0.89) (0.78) (0.25)
5-year -3.04** 0.53 1.36** 1.33*** X
temp. avg. (1.28) (0.76) (0.61) (0.51)
5-year -0.00 -0.01* -0.00 -0.01*** X
prec. Avg. (0.01) (0.01) (0.00) (0.00)
Lag X X X X 1.14***
Insurance (0.24)
Years Hail X X X X -0.00
Events (0.01)
Log Asset- X X X X -0.04**
Debt Ratio (0.02)
Constant 27.6 2.57 -10.48 0.98 -0.39
(19.2) (12.87) (9.64) (7.17) (0.86)
Numbers in parentheses are robust standard errors. *,**,*** indicate significance level of 10%, 5% and 1%,
respectively.

Correlations of first stage regressions
Swiss Sample French Sample
Atanrho 1_2 -0.15 -0.00
(0.10) (0.03)
Atanrho 1_3 -0.31*** -0.02
(0.12) (0.03)
Atanrho 1_4 -0.05 0.04
(0.13) (0.04)
Atanrho 1_5 0.00 -0.16
(0.13) (0.04)
Atanrho 2_3 -0.24** -0.17***
(0.10) (0.05)
Atanrho 2_4 0.53*** -0.18**
(0.12) (0.08)
Atanrho 2_5 0.15 0.02
(0.16) (0.04)
Atanrho 3_4 0.27*** -0.09**
(0.09) (0.04)
Atanrho 3_5 0.52*** 0.02
(0.17) (0.04)
Atanrho 4_5 0.38** -0.01
(0.18) (0.05)
Atanrho represents the transformed (arc-hyperbolic tangent), unbounded correlation coefficient of a pair of
equations (see Roodman, 2007).*,**,*** indicate significance level of 10%, 5% and 1%, respectively.

Coefficient estimates 2nd stage: Log pesticide
expenditures as dependent variable
Swiss Sample French Sample
Grassland -0.15 -0.03***
pred. (0.13) (0.00)
Wheat -0.01 0.01***
Intensive pred. (0.10) (0.00)
Wheat 0.13 0.01***
Extensive pred. (0.13) (0.00)
Root crops 0.10 -0.00
pred. (0.06) (0.00)
Insurance 0.69 0.04***
uptake pred. (0.47) (0.04)
Age 0.00 0.00
(0.01) (0.00)
Education -0.22 0.06***
(0.30) (0.01)
Log Fert. 0.07 0.62***
Expend. (0.06) (0.03)
Temperature -0.12 0.01
year (0.23) (0.01)
Precipitation -0.00 -0.00***
year (0.00) (0.00)
Constant 7.77*** 3.03***
(2.34) (0.32)
Numbers in parentheses are standard errors, based on 2000 bootstrap repetitions. *,**,*** indicate significance
level of 10%, 5% and 1%, respectively.

Coefficient estimates 2nd stage: Pesticide
quantities as dependent variable
Quantity of total Quantity of pesticide use by type of pesticide
pesticide use (kg AI) (kg AI)
Herbicides Fungicides Insecticides
Grassland pred. 113.37 -15.81 94.81 -113.92

(255.68) (90.40) (134.54) (134.23)
Wheat Intensive -144.40 -74.49 -3.62 -45.35
pred. (224.64) (85.51) (119.00) (74.24)
Wheat Extensive -90.08 -20.92 -78.50 -93.41
pred. (298.85) (102.50) (147.65) (131.07)
Foliage crops pred. 391.82** 149.63 *** 140.42* 121.01*
(158.46) (53.06) (80.38) (67.53)
Insurance uptake 733.88 113.68 1182.10** 273.64
pred. (700.59) (228.10) (480.46) (530.46)
Age 6.30 -2.91 2.82 -4.12
(18.80) (5.74) (9.93) (11.38)
Education 440.64 -71.60 675.00 66.71
(700.80) (244.84) (412.31) (354.34)
Log Fert. Expend. 44.17 20.70 * 354.04** 308.89**
(100.00) (10.86) (156.57) (149.20)
Temperature year 47.41 -20.15 183.76 -158.10
(472.48) (165.45) (251.10) (255.77)
Precipitation year -1.74 -0.59 -0.81 -1.45**
(1.10) (0.39) (0.63) (0.65)
Constant 1113.31 1080.28 -4844.14 -331.52
(4653.40) (1523.1) (3184.16) (3031.79)
Numbers in parentheses are standard errors, based on 2000 bootstrap repetitions. *,**,*** indicate significance
level of 10%, 5% and 1%, respectively.
Correlations of second stage regressions
Atanrho 1_2 0.68***

(0.10)
Atanrho 1_3 0.32***
(0.09)
Atanrho 2_3 0.51***
(0.16)
Atanrho represents the transformed (arc-hyperbolic tangent), unbounded correlation coefficient of a pair of
equations (see Roodman, 2007).*,**,*** indicate significance level of 10%, 5% and 1%, respectively.

Econometric framework
1st stage: System estimation of four Tobit (eq. 1,2) and one Probit regression (eq. 3,4)
(1) 𝑆𝑆𝑖𝑖𝑖𝑖∗ = 𝛽𝛽𝑆𝑆 𝑋𝑋𝑆𝑆 + 𝜖𝜖𝑖𝑖𝑖𝑖
𝑆𝑆 ∗ if 𝑆𝑆𝑖𝑖𝑖𝑖∗ ≥ 0
Use simulated maximum
(2) 𝑆𝑆𝑖𝑖𝑖𝑖 = � 𝑖𝑖𝑖𝑖
0 otherwise likelihood techniques for
(3) 𝐼𝐼𝑖𝑖∗ = 𝛽𝛽𝐼𝐼 𝑋𝑋𝐼𝐼 + 𝑣𝑣 estimation, using Stata`s cmp
(4) 𝐼𝐼𝑖𝑖∗ if 𝐼𝐼𝑖𝑖∗ ≥ 0 package (Roodman, 2007)
𝐼𝐼𝑖𝑖 = �
0 otherwise
2nd stage: OLS estimation with instruments and bootstrapped SE’s/ Sytem
estimation with instruments for herbicide/fungicide/insecticide quantities
(5) 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑘𝑘𝑘𝑘 = 𝛽𝛽𝑃𝑃 𝑋𝑋𝑃𝑃 + 𝛽𝛽𝑃𝑃𝑃𝑃 𝐼𝐼� �

𝑖𝑖 + 𝛽𝛽𝑃𝑃𝑃𝑃 𝑆𝑆𝑖𝑖 + 𝜔𝜔


Mohring Crop Insurance and Pesticide Use

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The Effects of Crop Insurance on Pesticide Use

Robert Finger*, Niklas Möhring*, Tobias Dalhaus*, Geoffroy Enjolras ǂ

 Pesticide use on the top of  Risk management tools like

introduced in the EU  New, innovative tools are

Placeholder for organisational unit name / logo

1. Insurances claimed to be substitutes for pesticides

2. Insurance uptake might influence land use decisions and

3. Decisions of pesticide use and insurance uptake both

Placeholder for organisational unit name / logo

 Does crop insurance influence pesticide use?

a. Do extensive margin effects play a role?

b. Do results differ w.r.t. different insurance systems (case studies

c. Does the specification of pesticide use (monetary units, physical

Placeholder for organisational unit name / logo

2. Pesticide use 2. Effect of predicted land use/

Insurance type hail insurance (not subsidized) multiperil insurance (max.

 Explanatory variables 1st step:

 Explanatory variables 2nd step:

Placeholder for organisational unit name / logo

 Feedback effects of lagged land use and insurance

Placeholder for organisational unit name / logo

Placeholder for organisational unit name / logo

 Allignement of agricultural policies needed:

 Analysis of interrelation between insurance and pesticide

 Evidence that risk preferences and attitudes matter for

Placeholder for organisational unit name / logo

Placeholder for organisational unit name / logo

Placeholder for organisational unit name / logo

Placeholder for organisational unit name / logo

Placeholder for organisational unit name / logo

Grassland pred. 113.37 -15.81 94.81 -113.92

Atanrho 1_2 0.68***

Placeholder for organisational unit name / logo

(1) 𝑆𝑆𝑖𝑖𝑖𝑖∗ = 𝛽𝛽𝑆𝑆 𝑋𝑋𝑆𝑆 + 𝜖𝜖𝑖𝑖𝑖𝑖

(5) 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑘𝑘𝑘𝑘 = 𝛽𝛽𝑃𝑃 𝑋𝑋𝑃𝑃 + 𝛽𝛽𝑃𝑃𝑃𝑃 𝐼𝐼� �

Placeholder for organisational unit name / logo

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Robert Finger, Niklas Möhring, Tobias Dalhaus*, Geoffroy Enjolras ǂ