The Government Should Encourage Farmers to Take Private Precautions Instead of Creating Disincentives Through Costly Relief Payments

Farmers in some regions of Germany have been experiencing crop failures as a result of the persistently warm and dry weather. Against this background, the German Farmers’ Association has asked federal and state authorities for financial support of one billion euros. Dr. Daniel Osberghaus, researcher in the Research Department “Environmental and Resource Economics, Environmental Management” at the Centre for European Economic Research (ZEW), Mannheim, offers his view on the matter.

“Many farmers in Germany are fearing serious crop losses due to the prolonged drought. Requests have already been voiced for the German government to grant tax-funded government relief. However, farmers already have the option of insuring themselves against drought-related crop failures. In comparison to other states in Europe and the US, these insurances are, however, not subsidised. Instead, they are even taxed by the government. As a result, demand for private provision is very low, and in many cases, the lack of insurance has indeed lead to heavy losses for farmers.

Granting government aid is, however, not a viable solution in the long term, as this highly depends on the situation of public funds, media interest and the influence of lobbying groups. Government assistance also has a negative impact on the motivation of farmers to make private provisions – whether in the form of private insurance or technological measures. Especially in view of climate change, which makes such droughts even more likely in the future, policymakers should pursue a more sustainable strategy and encourage farmers to take private precautions instead of creating disincentives through expensive relief payments.”

For further information please contact:

Dr. Daniel Osberghaus, Phone +49 (0)621/1235-205, E-mail daniel.osberghaus@zew.de