PEANUT UNIT EVALUATION

The evaluation's objective was to identify factors contributing to the citrus tree insurance program's poor loss experience. CFSA citrus tree insurance is available in three Texas counties. The citrus tree insurance program had the highest loss ratio (7.85) and the tenth highest net loss ($48 million) for the crops CFSA insured for the 1987 through 1991 crop years.

This evaluation was to determine whether the current unit structure affects the peanut loss experience. The peanut program had a net loss (indemnity minus premium) of $221 million and a loss ratio of 2.56 for the 1987-1991 crop years.

The current unit structure is defined in the peanut policy by farm serial number (FSN). A premium discount for basic/policy units is not an option of the peanut program. Producers with one FSN are paying the same rate as producers with multiple FSNs.

FINDINGS

The majority (53%) of the peanut contracts have multiple units. Multiple unit contracts have a 19 percent higher cost than single unit contracts. Loss ratio and loss cost remain constant regardless of the size of the unit for the overall peanut program for the 1989-1993 crop years. An empirical study showed a 12 percent reduction in indemnity by converting multiple unit contracts to single unit contracts for the 1989 and 1990 crop years. A change to the unit definition in the Peanut crop provisions was proposed for the 1995 crop year. This was not implemented due to time restrictions caused by Crop Reform implementation.