The Theory vs. Reality of Nitrogen Insurance

Index

1. Overview

2. The "Juice Isn’t Worth the Squeeze"

3. The Hidden Aspects and APH Destruction

4. Protecting the "Upside" vs. Insuring the "Downside"

5. Final Thoughts

I recently read a study in Communications Earth & Environment that lays out a market-based nitrogen insurance concept designed to align environmental and economic outcomes for farms.

Finding ways to be more efficient with fertilizer is a worthy cause. However, there are so many moving variables that go through a farmers decision making process that need to be accounted for, and often, can’t be.

The premise sounds simple and useful at first glance: farmers pay a premium to insure against the yield risk of applying "science-based" (lower) nitrogen rates.

If the lower rate causes a yield hit compared to a "business as usual" check strip, the insurance pays out. The authors claim this creates a "triple win:” higher profits for farmers, profit for insurers, and reduced environmental impact.

But when you look at it critically, it starts to look like a headache, and a miss on how farmer incentives and psychology work in the real world.

The "Juice Isn’t Worth the Squeeze"

The study focuses on a value creation number that isn’t overly impressive. The authors calculate that the average value to the farmer is approximately $13.80 per hectare, or roughly $5.60 per acre per year.

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