Natural insurance as condition for market insurance: Climate change adaptation in agriculture

This paper focuses on the potential use of insurance as a climate change adaptation mechanism in agriculture. We analyse the attractiveness of a climate risk insurance scheme and the choices farmers face between adaptation via farm management practices and purchase of crop insurance in the market. A choice experiment is used to reveal Danish farmers' preferences regarding an insurance contract where adoption of land management practices to improve soil sustainability is conditional for obtaining insurance cover in the market. Results indicate that in general arable farmers and farmers with low soil quality who have experienced crop damages in the past are more likely to purchase such conditional insurance. Farmers with good quality soils, who perceive that they have already adapted their practices to climatic risks and who have not experienced losses due to adverse climatic events in the past are less willing to purchase insurance. The paper contributes to the limited knowledge on preferences for climate risk related insurance in agricultural systems in general, and in Europe in particular.