Tropical systems spin up Mid-South crop insurance rates

LITTLE ROCK — Farmers in Arkansas, Louisiana and Mississippi, pay four to six times more for crop insurance than their counterparts in the upper Midwest, and Hunter Biram wanted to know why.

It’s a question that’s been in Biram’s head since his dissertation days at Kansas State University.

Now a Ph.D. extension economist for the University of Arkansas System Division of Agriculture, Biram, along with co-authors Cameron-Harp, agricultural economist, and Jesse Tack, professor of Agricultural Economics, both of Kansas State, have some answers.

The result of their research — Measuring the impact of hurricane incidence on agricultural production risk using insurance data — was published in late July in the field’s top journal, the American Journal of Agricultural Economics.

“I began to study the price of insurance crop insurance across the United States, and what I noticed was, there were vast differences in prices between what folks in the South and primarily the Mid-South would pay versus those in the upper Midwest,” he said. “One thing that I begin to think about and do some research on is what's different about the Mid-South?”

Biram began to delve into the differences in rates between Arkansas, Louisiana and Mississippi versus Illinois, Indiana, Ohio, Iowa and parts of Minnesota.

“I'm not saying that the rates in the Mid-South should match those of the Upper Midwest. But we're talking about rates that are 4, 5, 6 times higher than that of the Upper Midwest,” he said.

Biram said “there’s a 2-cent per $1 of liability rate in the Upper Midwest, where a similar situation in the Mid-South could be more like 15 or 16 cents per dollar of liability. There’s a significant difference.”

Hurricanes and production risks

“Obviously, everybody faces similar price volatility from global markets, things like the Russia and Ukraine conflict among others,” he said, “But one thing that’s unique in the Mid-South is the incidence of hurricanes. We’re so close to the gulf.”

Biram said that while hurricanes don’t explain everything, “I began to dig a little big deeper to find what portion of that price is going to be attributed to hurricane incidents. That’s what this study attempts to do: What is the impact of hurricanes on production risk.”

Production risk generally translates into crop insurance premium rates.

“While premium rates drove the question, it’s really more of a symptom,” he said.

While the Upper Midwest may weather tornadoes and the occasional derecho, the frequency and scope of damage are different than that of hurricanes.

Biram said he limited the study to named storms that made landfall in Louisiana and Mississippi because they are “most likely make an impact on Arkansas.”

Crop insurance gaps

In 2021 alone, hurricanes caused $145 billion in property damage, making it the third most costly hurricane season and seventh to see 10 or more $1 billion-dollar events, according to the National Oceanic and Atmospheric Administration.

Between 2002 and 2021, the Mississippi Delta region of Arkansas, Louisiana and Mississippi experienced 30 hurricanes and tropical storms. Several storms, degraded to tropical depressions, meandered their way across Arkansas, affecting areas not covered by a hurricane-specific insurance called HIP-WI.

HIP-WI or the Hurricane Insurance Protection – Wind Index endorsement, is offered by the Risk Management Agency of the U.S. Department of Agriculture. There’s also an add-on that covers tropical storms.

The full value of the HIP-WI Endorsement is paid if a county, or adjacent county, is within the area of sustained hurricane-force winds from a named hurricane based on data published by the NHC.

However, in Arkansas the eligible counties are bounded by the Louisiana border to the south, Union County to the west, up through Cleveland and Jefferson counties, with Lee and Monroe counties being the northernmost of the eligible counties in Arkansas.

Above and below the eligibility line

“We’ve shown that the portion of hurricane incidence is, for the most part, not too different from above the HIP-WI eligibility line as it is below,” Biram said.

Looking at wind and water damage to four crops: corn, cotton, rice and soybeans, “the portion of the base premium rate attributable to hurricane damage is greatest in counties closer to the coast and then typically decays moving inland, which is expected as hurricane systems lose power as they move inland,” the researchers wrote.

“There are counties in northeast Arkansas that are higher than parts of Louisiana — especially in the case of cotton. It’s very clear in cotton and in soybean but not so much in rice and corn,’’ Biram said.

“The proportion of the rate can be quite large reaching a high of 92 percent for cotton and 42 percent for soybeans,” Biram said. “The impacts for rice and corn are much smaller with highs of 29 percent and 9 percent respectively.”

Cotton tends to be vulnerable because boll formation and opening happen during hurricane season. Cotton and soybeans are less likely to incur prevented planting losses which are more prevalent in corn and rice.

“I think the next step would be to visit with the Risk Management Agency and other policy makers to find a way to help farmers in northeast Arkansas manage hurricane risk. I know it sounds interesting to think that we need to manage hurricane risk in northeast Arkansas,” Biram said.

To learn about extension programs in Arkansas, contact your local Cooperative Extension Service agent or visit www.uaex.uada.edu. Follow us on X and Instagram at @AR_Extension. To learn more about Division of Agriculture research, visit the Arkansas Agricultural Experiment Station website: https://aaes.uada.edu/. Follow on X at @ArkAgResearch. To learn more about the Division of Agriculture, visit https://uada.edu/. Follow us on X at @AgInArk.

About the Division of Agriculture

The University of Arkansas System Division of Agriculture’s mission is to strengthen agriculture, communities, and families by connecting trusted research to the adoption of best practices. Through the Agricultural Experiment Station and the Cooperative Extension Service, the Division of Agriculture conducts research and extension work within the nation’s historic land grant education system. 

The Division of Agriculture is one of 20 entities within the University of Arkansas System. It has offices in all 75 counties in Arkansas and faculty on three campuses.  

Pursuant to 7 CFR § 15.3, the University of Arkansas System Division of Agriculture offers all its Extension and Research programs and services (including employment) without regard to race, color, sex, national origin, religion, age, disability, marital or veteran status, genetic information, sexual preference, pregnancy or any other legally protected status, and is an equal opportunity institution.

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Media contact: Mary Hightower

mhightower@uada.edu