Margin protection for crop insurance: modeling and applicability in Brazil

Abstract

Created in the North American market in 2015, the margin protection (MP) for crop insurance is an innovative product that protects farmers against an unexpected decrease of their operating margin. Its coverage is based on an expected margin, that is the difference between the expected revenue and the operating costs for each crop. The present study examined the characteristics and applicability of this rural insurance category in Brazil. The MP and the harvest price option (MP-HPO) insurance modalities were analized through simulations of four different scenarios for soybean production in Paraná state, from the harvest data of January 2022. The results show that the value of compensation paid for the MP-HPO insurance modality exceeds by approximately 46% the amount paid for the MP modality. This insurance is theoretically interesting because it takes into account numerous sources of risk involved in its modeling.