An Empirical Study on the Economic and Policy Drivers of Livestock Risk Protection Utilization

Federally supported risk management programs for livestock producers have existed for the last twenty years. Among these, Livestock Risk Protection (LRP) is a federally subsidized insurance tool available for cattle producers to manage downside price risk. In recent years, participation in LRP has surged. This paper examines the key economic and policy variables that partially drive LRP utilization and analyzes the role of risk management educational efforts in the decision to participate and the intensity of the insurance utilization using unique state-level panel data from 2003 through 2023. The study analyzes three complementary metrics of insurance utilization: market volume (policies earning premium), market coverage (product market share), and scale of use at the operator level (producer market share). Results show that feeder cattle price, herd size, and educational efforts significantly affect the insurance participation decision and that subsidy rate, feeder cattle price, and price volatility strongly determine the intensity of the market volume (p < 0.1). The findings also show that producers in states with smaller to medium-sized operations utilize LRP more intensively than with larger operations. Although statistically non-significant at p = 0.1, educational efforts suggest a positive effect on expanding LRP market volume and market shares. While the marginal effect of education on LRP market volume gets stronger at higher subsidy rates, its marginal effect on market share diminishes at higher subsidy levels. This potentially suggests a substitution effect between the producers’ knowledge of the product, enhanced by educational efforts, and the financial incentives provided by the higher subsidy rates. The magnitude and the significance of these effects both vary across different utilization metrics. Further research could address important economic and policy implications of potential trade-offs between educational efforts and the subsidy rate on LRP utilization. This research could also be extended to county-level data to analyze localized educational efforts and impacts. Advisor: Bradley D. Lubben