inaction due to no knowledge of potential threats or no available alternative risk transference options. Like risk mitigation practices, risk retention practices have costs. Costs are also incurred when the producer who is less willing to take risk transfers that risk through the marketplace to those who are more willing to take risks. Examples of risk transfer mechanisms include forward contracting, futures markets and insurance. Few opportunities exist in aquaculture for forward contracting and futures because of the small scale of individual aquaculture industries, a lack of large quantities of homogenous products and no developed futures markets. Insurance is the most widely used method of risk transference and is a legal contract ensuring the transfer of risk to a third party for a fee or a premium. The insurance provider pays an indemnity when a loss is above an agreed upon threshold. Those buying insurance are risk averse because they are willing to pay premiums; they are willing to accept a certain small loss (premium) to protect against the possibility of a much larger loss. Insurance companies can provide such coverage because they pool risks by providing insurance to many producers. If the occurrence of insured perils is not positively correlated, then pooling can reduce the overall exposure to loss by insurance companies. In other words, the probability of all insured operations in the same region or same time period experiencing large losses is low. Typically, producers utilize a combination of risk mitigation, risk retention and risk transfer methods to manage their production risks. lnsurability Criteria Rigorous insurability criteria must be used to determine the feasibility of covering a peril in an insurance policy inasmuch as not all perils are insurable (Barnett et al. 1999, Coble et al. 2003). Otherwise an insurance market will not succeed. The first requirement is knowledge of how frequently a specific peril causes major losses on an operation. Significant losses may be defined as a level of losses greater than some Table 1. Production risks to US. aquaculture industries. Ranking Catfish Salmon Trout Baitfish Diseases Floods/Storms (Tied for #1) 2 3 4 Diseases Bird Predation Toxic Algae Power Outages Diseases Escapes Algal Blooms Diseases Interruption in Water Supply Floods Bird Predation Power Outages * Additionalperils that 1'I ere identified to potentially cause significant economic loss but were not ranked include: drought, earthquake, environmental restrictions, flooding, market loss, off-flavm; oxygen depletion, pesticide contamination, predators, species contamination, vandalism, volcanoes, water pollution or weather/climate change. Developing fish production insurance The Agriculture Risk Protection Act of 2000 provides opportunities to explore risk management protection options for underserved agricultural sectors including aquaculture. Through this act the United States Department of Agriculture's Risk Management Agency (RMA) developed a partnership with Mississippi State University to establish the National Risk Management Feasibility Program for Aquaculture (NRMFPA). RMA offers policies for over 100 crops through the Federal Crop Insurance Corporation (FCIC; Risk Management Agency 2005). However, there is only one pilot project involving aquaculture (clams) so efforts are underway to examine the feasibility of expanding coverage to other aquaculture industries. The NRMFPA is currently assessing the feasibility of developing insurance products for catfish, trout, baitfish and salmon. These insurance products may cover multiple perils in one policy. The NRMFPA will submit its recommendations to the RMA in 2006. RMA will examine the draft policies and recommendations. If a program proposal passes through this process then it may become available on a limited pilot program basis. The process often takes several years. For example, the clam policy was developed and then reviewed and endorsed by RMA/FCIC five years ago. It is now available as a pilot program to a limited number of producers while RMA/FCIC field tests the actuarial soundness of the insurance product. The policies for finfish aquaculture, if deemed feasible, would go likely through a similar process. To learn more about the NRMFPA and RMA please visit the websites at: http://www.agecon. msstate.edu/Aquaculture/ and http:// www.rma.usda.gov/. Aquaculture risk survey The National Risk Management Feasibility Program for Aquaculture, in collaboration with the National Agricultural Statistics Service, is conducting a survey concerning risks facing catfish, trout, and baitfish produ�ers. Over 1,900 aquaculture producers will be contacted through these nah �� wide surveys and asked to report on historical production losses, anticipated future losses, and other subjects essential to ?eveloping sound, a � propriate insurance policies. The successful complet10n of these surveys 1s a vital step in determining if aquaculture insurance can be offered through the USDA Risk Management Agency/FCIC. WORLD AQUACULTURE 29
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