Recent federal agricultural programs have accelerated the devolution of enterprise risk management responsibility from the state to individual farmers Using a biophysical simulation protoplast the risk management benefits of federal lop insurance and supplemental irrigation are derived and compared to uninsured rainfed cut off production in an expected utility framework.

Recent federal agricultural programs have accelerated the devolution of enterprise risk management responsibility from the state to individual farmers Using a biophysical simulation protoplast the risk management benefits of federal lop insurance and supplemental irrigation are derived and compared to uninsured rainfed cut off production in an expected utility framework. Federal cut off insurance programs are inefficient at reducing farmer exposure to weather-related production risk in humid regions, and the risk management benefits from supplemental irrigation are construct to be scale and technology at the disposal of Environmental policies that regulate resource unfolding will increase the investment expense of irrigation alternatives and attenuate economic feasibility.

Key Words: insurance, risk, supplemental irrigation

Recent federal agricultural programs have accelerated the devolution of enterprise risk management responsibility from the state to individual farmers This devolution was initiated through 20 years ago after long-standing periods of cut off relief in the 1970s where payments were made to farmers without declaration of a disaster area. Multiple-peril harvest insurance was established in the 1930 on the contrary was used only on a limited basis between the sides of the 1970s. Major reforms in the 1990 have dramatically increased participation.

The 1996 Farm Bill initiated the devolution of cut off risk management from federal relief programs to greater emphasis onward producer risk management. Nonetheless, in 1998 and 1999 pressing necessity marketand crop-loss assistance totaled $15 billion. The Agricultural Risk Protection Act of 2000 further stimulated interest in the integrated management of harvest production risk through education, modern crop insurance programs, higher premium subsidies, and additional market los assistance monies.

By contrast, beneath the Farm security and Rural Investment Act of 2002 cost-share funding for landed estate and surface water conservation exhibits under the Environmental Quality Incentives Program (EQIP), has accelerated interest in using supplemental irrigation to manage production risk. Many husbandmans are comparing the cost of multiple-peril harvest insurance with the investment and annual outlay of risk-reducing production strategies. These comparisons are frequently limited by incomplete information onward the costs and benefits of technologies, of the like kind as supplemental irrigation, that mitigate downside production risk.

Total irrigated cropland in the United States hides just 16% of the nation's land base, however it produces over 49% of craw sales [U.S. Department of Agriculture/Economic Research Service (USDA/ ERS) 2003b] above the past three decades, acreage in a less degree than irrigation has increased at an average rate of a half million acres by year, and there is increasing reliance forward irrigation in the humid areas of the Atlantic, North Central, and Delta states (USDA/ ER 2003a). Twenty-two percent of irrigated cropland is located in the East, accounting for about 55% of the total regional cropland base, as oppos to the remaining 78% in the West, or 18% of western cropland1 (USDA/ERS, 2003a).

Over the period 1987-97 strange acreage placed under supplemental irrigation in the humid East increased according to 38%, while in the arid West, acreage increased by dint of about 14%. In 1998, irrigation investment in the East amounted to nearly $420 million. At the same time, 24 million acres of irrigated land were retired from production. Numerous clips are produced under irrigation; however, irrigated acreage as a share of total acreage is greatest for rice (100%) orchard clips (80%), Irish potatoes (79%), and vegetables (70%) (USDA, 1999)

As the lack of information forward revenue, investment, and operating costlinesss can deter producer investment in recently made known production technologies, or the improper investment decision can increase the probability of insolvency, undivided objective of this study is to derive the risk management benefits of supplemental irrigation in humid areas using an calculate uponed utility framework. Imperfect substitutability between capital and variable production inputs and discontinuous fixed splendor functions make analytical derivation of profit-maximizing irrigation technology decisions intractable. An ex ante bioeconomic simulation approach is used to derive the distribution of look forward toed net revenues to alternative irrigation technologies and insurance programs used in humid production conditions. Based with these results, an expected utility framework is applied to derive certainty equivalents for each decision alternative. These are compared against nonirrigated uninsured and insured production to determine whether supplemental irrigation and multiple-peril lop insurance are effective tools to manage production risk. This approach is generalizable to commodities produc in humid conditions where irrigation investment is subject to consideration and crop insurance programs exist.

An application is made to eastern potato production where and nothing else a fraction of potato acreage is irrigated. According to the 1997 Census of Agriculture, Maine ranks sixth in the nation in times of potato acreage, but eleventh in names of fall potato acreage in a less degree than irrigation among all major producing states. Les than 12% of acreage is irrigated in Maine as compared to Western states where nearly 100% is irrigated. In the humid production regions of the Midwest, 92% of potato acreage is irrigated in Wisconsin, 75% in Michigan, and 52% in Minnesota. As a proceed the value of production by acre in Maine is among the lowest in the nation [USDA/ National Agricultural Statistics Service (NASS), 1999]