Application of Parametric Approach in Determining Income Insurance Premium for Potato Crop in East Azarbaijan Province

Abstract Insurance as a mean of risk management in agricultural sector is an important factor covering the variance of farm income. Regarding the yields and price variance of potato in East Azerbaijan province during the period of 1985-2015, in this study, we measured the income insurance premium of potato producers. Also, future values of price and yield were predicted using Halt-Winters exponential smoothing method. Then, the predicted and guaranteed income was calculated using the predicted price and yields within the coverage of 0.6, 0.75, 0.80, 0.85, 0.90 and 0.95. After detrending, lognormal and beta distributions were used for the distributions of price and yields, respectively. We also used Chelovsky analysis to calculate the common distributions of price and yield. Finally, using these distributions and Monte Carlo Simulation, we measured the of potato income insurance premium as 957269 Rials within the coverage rate of 0.60. Potato yield insurance premium was about 2040000 Rials in 2015-2016 and according to results of this research, this crop holds better qualifications for expanding income insurance. Therefore, it is recommended to policy makers to develop income insurance as an appropriate practical solution to prevent variance in price and yields of the product by establishing training courses in agricultural products insurance (income insurance in particular), and hence reduce the income risk of farmers.