The Impact of Crop Insurance on Fertilizer Use: Evidence from Grain Producers in China

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Review Comments on “The impact of crop insurance on fertilizer use: evidence from grain producers in China,” for Agriculture

In this paper, authors study the effect of crop insurance on fertilizer use (at the plot level) among a sample of 1039 farmers across four regions in China. Authors use instrumental variable regressions to estimate this relationship, while control for experience, plot quality, education, gender, crop type, etc. The major finding of the paper is that crop insurance does not induce more fertilizer use among the sample of farmers in the study. However, this result is heterogeneous across farming scales; with large scale farmers witnessing some decrease in fertilizer use while small scale farmers see no change in fertilizer use in response to crop insurance. All the results of the paper are in line with existing literature, but its contribution, in my opinion is the case study aspect of it.

·         Given the significant literature on the relationship between crop insurance and input use in agriculture, so it is baffling why authors omit a literature section in the paper. Results in the paper are to Regmi et al. (2022); Enjolras & Aubert (2020). Weber et al. (2016); Smith & Goodwin (1996); etc. etc. See some more literature below, but it is your job to find and review this literature.

·         In section 2.2, author imply (and correctly so) that income plays in role in farmers’ choices. Why then do they leave this out in their regressions? Isn’t that an issue of omitted variable bias? Farming scale alone may not necessarily address it.

·         You measured fertilizer expenditure at levels. Why not do it relative to total farm expenditure? You could also do fertilizer quantity per area of plot size.

·         Are there government restrictions or regulations that apply to famers in your sample?

·         Limit inference to the sample studied. It might be too optimistic to be generalizing the results to China as a whole.

 

References

Chang, H. H., & Mishra, A. K. (2012). Chemical usage in production agriculture: Do crop insurance and off-farm work play a part?. Journal of environmental management, 105, 76-82.

 

Enjolras, G., & Aubert, M. (2020). How does crop insurance influence pesticide use? Evidence from French farms. Review of Agricultural, Food and Environmental Studies, 101, 461-485.

Horowitz, J. K., & Lichtenberg, E. (1993). Insurance, moral hazard, and chemical use in agriculture. American journal of agricultural economics, 75(4), 926-935.

Regmi, M., Briggeman, B. C., & Featherstone, A. M. (2022). Effects of crop insurance on farm input use: Evidence from Kansas farm data. Agricultural and Resource Economics Review, 51(2), 361-379.  https://doi:10.1017/age.2022.5

Si C, Li Y, Jiang W. Effect of Insurance Subsidies on Agricultural Land-Use. Int J Environ Res Public Health. 2023 Jan 13;20(2):1493. doi: 10.3390/ijerph20021493. PMID: 36674259; PMCID: PMC9864581.

Smith, V. H., & Goodwin, B. K. (1996). Crop Insurance, Moral Hazard, and Agricultural Chemical Use. American Journal of Agricultural Economics, 78(2), 428–438. https://doi.org/10.2307/1243714

Weber, J. G., Key, N., & O’Donoghue, E. (2016). Does federal crop insurance make environmental externalities from agriculture worse?. Journal of the Association of Environmental and Resource Economists, 3(3), 707-742.

 

Comments on the Quality of English Language

Edit for typos and language use. EG, "large farmers" or "small farmer" doesn't quite project the meaning you intend.

Author Response

1.Given the significant literature on the relationship between crop insurance and input use in agriculture, so it is baffling why authors omit a literature section in the paper. Results in the paper are to Regmi et al. (2022); Enjolras & Aubert (2020). Weber et al. (2016); Smith & Goodwin (1996); etc. etc. See some more literature below, but it is your job to find and review this literature.

Reply: Thanks very much for your comment. We did miss some recent literature about this topic. We have reviewed these literature and supplemented them in the paper.  

2. In section 2.2, author imply (and correctly so) that income plays in role in farmers’ choices. Why then do they leave this out in their regressions? Isn’t that an issue of omitted variable bias? Farming scale alone may not necessarily address it.

Reply: We really appreciate your comment. As stated in the paper, the ratio of agricultural income and total income plays an important role in the process of claiming compensation. The household income alone would not simultaneously exert greater impact on insurance decision and fertilizer use. In the context of China, farming scale is a better variable to measure the importance of agricultural income. For small-scale farmers, the land area is small, the agricultural income accounts for a very low proportion of the total household income, but large-scale farmers generally have higher agriculture income relative to total household income.

We also rerun the model with the variable of household income. The result is basically consistent to the model, excluding income variable, that is used in the paper. Blow is the estimation result.

Table 1 Comparison between IV estimation with and without income Variable

IIM(1)

	IV estimation without income	IV estimation with income
	(2)
Insured or not	-0.172	-0.015
	(0.117)	(0.024)
Income		-0.00001
		-0.000029
Other variables	YES	Yes
Constant	4.401***	4.25***
	(0.159)	(0.183)
Observations	1707	1707
R2	0.130	0.123
Prob>chi2	0.000	0.000

 Note:  brackets in the table are robust standard errors, *, **, and *** indicating significance levels of 10%, 5%, and 1% respectively.

3. You measured fertilizer expenditure at levels. Why not do it relative to total farm expenditure? You could also do fertilizer quantity per area of plot size.

Reply: Thank you for your comment. Fertilizer expenditure relative to total farm expenditure can reflect how important fertilizer is to farm production. But in this paper, we only examine the fertilizer difference between insured and uninsured farmers, but not fertilizer’s importance. As you stated, fertilizer quantity is also very important variables. We have used it as explained variables in robustness analysis in section 4.3.2. Due to type error, title of section 4.3.2. is fertilizer expenditure as independent variable, but is should be Fertilizer quantity as independent variable. We have modified it.

4. Are there government restrictions or regulations that apply to famers in your sample?

Reply: Thank you for your comment. According to our field investigation, there are no relevant government regulations that apply to farmers in our sample. For crop insurance, the government mainly influences farmers' decision-making through subsidy policies; As for the fertilizers application, the government mainly affects the use of chemical fertilizers by improving fertilizer production and fertilization methods, but not government regulations.

5.Limit inference to the sample studied. It might be too optimistic to be generalizing the results to China as a whole.

Reply: Thank you for your comment. As you pointed out that, it's hard to extrapolate a population from a sample. To ensure that the sample was representative, we selected four sample provinces covered three regions of China: eastern, central and western China; In each province, a sample of counties was randomly selected according to food production, and townships, villages and farmers were randomly selected within the sample counties . Of course, our presentation in the paper has also been improved to try to avoid generalizing the results to the whole of China. Please refer to the resubmitted manuscript for specific revisions.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

The paper presents an analysis of an original  idea that is to investigate he relationship between crop insurance and the fertilizer use.

The first problem is that this relationship is not very well described on a theoretically point of view. In this sense the paper needs a  part to answer to the following question: why should the farmers decide to use less fertilizer when they are insured?

The second problem is that empirically is not clear if the increase in the insurance coverage and the reduce in the use of fertilizers are simple due to changes in premiums and prices. This is not explained by the Authors neither is solved by the implementation of the instrumental variable methodology.

The third problem is that there is no reference to previos recent articles on this topic. The only "quite" recent article if Weber et al. (2015) in which "Estimates indicate that expanded coverage had little effect on the share of farmland harvested, crop specialization, productivity, or fertilizer and chemical use". In fact the Authors in the Conclusions refer to "previous studies" and "existing studies" without quoting specifically them. But to be accepted the paper needs to be a scientific contribution in terms of similarities and/or differences with existing studies.

 

 

Comments on the Quality of English Language

Sometimes english expressions are not easy understandable.

Author Response

1.The first problem is that this relationship is not very well described on a theoretically point of view. In this sense the paper needs a  part to answer to the following question: why should the farmers decide to use less fertilizer when they are insured?

Reply: Thank you for your comment. As you said, we did not well describe the theoretical framework as a single part. We have added a new part in section 2 to further describe the theoretical mechanism.

2.The second problem is that empirically is not clear if the increase in the insurance coverage and the reduce in the use of fertilizers are simple due to changes in premiums and prices. This is not explained by the Authors neither is solved by the implementation of the instrumental variable methodology.

Reply: Thank you for your comment. We can know the the effect of premiums and prices from the result of first stage estimation result of IV , listed in the table blow. The premium rate is the price of crop insurance, which is ratio of premium and indemnity. We can find premium rate has significant positive impact on insurance purchase decision.

This paper focus on the relationship between insurance decision and fertilizer use. The premium is an important IV to help us to identify the casual effect. The role of changes in premium is not most important part in this paper. So we didn’t introduce it in detail.

 

	1st stage estimation of IV
	Insured or not
Premium rate	18.62***
	(6.45)
Implemented in town or not	1.44***
	(0.34)
Village participation rate	0.008***
	(0.002)
Other control variables	YES
Constant	-3.38***
	(0.62)
Observations	1707
Prob>chi2	0.000

 Note: brackets in the table are robust standard errors, *, **, and *** indicating significance levels of 10%, 5%, and 1% respectively.

3.The third problem is that there is no reference to previos recent articles on this topic. The only "quite" recent article if Weber et al. (2015) in which "Estimates indicate that expanded coverage had little effect on the share of farmland harvested, crop specialization, productivity, or fertilizer and chemical use". In fact the Authors in the Conclusions refer to "previous studies" and "existing studies" without quoting specifically them. But to be accepted the paper needs to be a scientific contribution in terms of similarities and/or differences with existing studies.

Reply: Thanks very much for your comment. We did miss a part of recent literature. We have supplemented literature in the paper and updated the literature review.

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

The article addresses an important issue, especially in the context of the challenges of sustainable development and risk in agriculture. The article looks at the determinants of agriculture and insurance in China. The results of the study cannot be related to agricultural producers in other countries, however, it provides some insight into the importance of insurance and its impact on fertiliser use. An interesting approach is to examine the relationship between insurance and fertiliser inputs according to farm size.

My comments:

1) The manuscript needs to be brought into line with journal requirements for bibliographic references - they should be numbered, e.g. [1].

2) I find incomprehensible the statement in the abstract: "Considering the sub-stantial proportion of small-scale farmers in China, it can be concluded that the current crop insur-ance system does not contribute to environmental degradation in agriculture". After all, the intention of insurance is not to degrade the environment, but to reduce risks. Is this inference not going too far?

3) The data presented in this study is quite old, have conditions not changed over this time? Please explain this.

4) It would be useful to provide some information on the level of fertiliser use in Chinese agriculture. Are there any state regulations on fertiliser use in agriculture?

Author Response

C1. The manuscript needs to be brought into line with journal requirements for bibliographic references - they should be numbered, e.g. [1].

Reply: Thank you for your comment. We have addressed this problem in the paper.

C2. I find incomprehensible the statement in the abstract: "Considering the sub-stantial proportion of small-scale farmers in China, it can be concluded that the current crop insur-ance system does not contribute to environmental degradation in agriculture". After all, the intention of insurance is not to degrade the environment, but to reduce risks. Is this inference not going too far?

Reply: Thank you for your comment. We originally intended to introduce this as part of the policy implications here. As you said, it’s too far from crop insurance. So we've made changes in the abstract.

C3. The data presented in this study is quite old, have conditions not changed over this time? Please explain this.

Reply: Thank you for your comment. As you said, the data is quite old. However, the crop insurance policy in China haven’t changed significantly since then. Especially the micro mechanisms that have a significant impact on agricultural insurance policies, such as claims and loss assessment, have hardly changed. Therefore, the data at that time still had significant implications for current policies and academic research.

C4. It would be useful to provide some information on the level of fertiliser use in Chinese agriculture. Are there any state regulations on fertiliser use in agriculture?

Reply: Thank you for your comment. We have supplemented these information as section 2.4 in the paper.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

Authors did their best to address the review comments

Comments on the Quality of English Language

Simple typos that can be corrected in typesetting

Reviewer 2 Report

Comments and Suggestions for Authors

The paper can be accepted in this version

Comments on the Quality of English Language

The paper can be accepted in this version