Specialty Topics

In October of last year, The Progressive Corporation announced that it would not be renewing about half of its homeowner’s insurance policies in the state of Florida. The notice went into effect last month, with letters going out to homeowners stating, 

“Dear Policyholder, your policy will expire at 12:01 on July 1, 2024, for the following reasons. After careful consideration we are unable to offer you a renewal policy due to a reduction in our hurricane exposure. Please contact your agent to find replacement coverage”.

They were not the first insurer to do so and are not expected to be last. Damage from natural disasters across the Gulf Coast, whether in the form of windstorms, flooding, or hail, has led to a rise in the payouts insurers are making to their policyholders. The Insurance Information Institute’s 2023 annual report wrote of the 28 US weather events exceeding damages of $1 billion, breaking a previous record of 22 in a single year. These disasters led to total insured losses of approximately $60 billion in 2023 (Insurance Information Institute, 2023). To remain solvent these insurers are managing through two courses of action, passing on costs via increased premiums for consumers, and exiting regions where the risk is deemed too high to justify any premium at all. With insurance a requirement for almost all property under lien (commercial, residential, or agricultural), a relatively less stable insurance market threatens a community’s very ability to build capital, by threatening its ability to take advantage of credit. 

Among the policy proposals intended to shore up these markets are new allowances for premium hikes, adaptation policies such as more stringent building compliance codes, and an increased reliance on reinsurance and “catastrophe bonds” intended to spread out risk among global investors. New research has studied the threat of adverse selection in these markets, particularly as it relates to one’s own perceived vulnerability to a natural disaster (Wagner, 2022). In short, natural disaster insurance markets are adversely selected if homeowners with a higher willingness to pay for insurance are also more costly to insure. Akin to the problem health insurers have with smokers seeking insurance without disclosing their smoking, those homeowners who feel most at risk to natural disasters are the most likely to seek insurance for them. When this is the case, an increase in premiums tends to crowd out those with the lowest willingness to pay, which also tend to be those with the lowest risk among policy buyers. If this occurs, no progress is made toward an insurer’s goal of improving the cost/risk profile of their portfolio, while making insurance more expensive for those who remain insured. The administrators of the National Flood Insurance Program considered this a top concern during their latest meetings on long-term authorization (Wagner, 2022).

Reinsurance has long been an effective tool for disseminating local risk to a global investor base. Firms such as Swiss Re and Munich Re are the largest global buyers of natural disaster risk, allowing regional insurers to offload policy risk for commensurate fees. As Gulf Coast disaster risk has grown in recent years due to climate change, so has the cost of reinsurance, to the point that regional insurers find it no longer cost effective to offer certain policies, particularly those with high property valuations and/or low disaster resilience. These tend to be disproportionately located in rural communities and include many agricultural structures, as well as those categorized as “secondary homes”. The increased use of catastrophe bonds is one-way reinsurers have continually enticed third-party investors to assume this risk. If a natural disaster occurs within the bond’s predetermined lifespan (usually three years) then the principal is lost and used to reimburse those impacted, via payments to the reinsurer and then the regional insurer. The trigger for a catastrophe bond can be a natural disaster of a certain size hitting the area under coverage, or damages exceeding a predetermined threshold. If no disaster occurs, then the investors simply get back their capital, with interest (Keucheyan, 2018).

These flexible financial instruments, along with ongoing policy changes, have had enough of a positive impact on insurance markets over the first half of 2024 that some homeowners are seeing insurers returning to areas they had once abandoned. However, this short-term success is one continually threatened by the next set of natural disasters and the increased severity and frequency climate change has imbued them with. 

References: 

2023 Annual Report. (2024). Insurance Information Institute. Retrieved from https://www.iii.org/sites/default/files/docs/pdf/triple-i_2023_annual_report.pdf

Keucheyan, R. (2018). Insuring climate change: New risks and the financialization of nature. Development and Change, 49(2), 484-501. doi:10.1111/dech.12367

Lopez, Benjamin. “Natural Disaster Insurance and Markets Under Pressure: New Challenges to Managing Risk in Rural Communities.” Southern Ag Today 4(28.5). July 12, 2024. Permalink

The popularity of Community-Supported Agriculture (CSA) has been on a downward trend for over 20 years. As such, the continuous decline of CSAs raises the question of whether their traditional business model can compete with other local food sources. Since the first CSA program was introduced in 1986, CSAs have not changed their core model; farmers and consumers maintain a direct relationship, ensuring financial support for the farmers while providing members with locally grown food. Typically, CSA members pay a seasonal up-front fee ranging from $400 to $800 in exchange for predesignated boxes of raw ingredients, which can be picked up or delivered. Though many CSAs have partially modified their model with up-front pricing policies and CSA box options, their core model has yet to change since its inception. Meanwhile, CSAs became the least favorable option for local food customers (Seo & Hudson, 2023). Many larger retailers provide local food with greater accessibility, diverse selections, and entertainment options like live music. Similarly, farmers’ markets offer fresh local food with a strong emphasis on community engagement & support, and various entertainment, which CSAs typically lack. Thus, the continuous diminishing of CSAs suggests that they need to reconsider their outdated business model to remain competitive and sustainable among other local food sources.

However, the local food model in South Korea sheds some light on how CSA farmers could better position themselves among local food sources. In Korea, numerous small local food shops run by small cooperatives effectively bridge the gap between micro farmers and customers in rural communities. The common thread among these local food shops is their utilization of the Wanju Local Food Cooperative‘s local food model. This model won awards at the Milan Urban Food Policy Pact (MUFP) in Governance for “Local Food No. 1 Project” in 2018 and in Social and Economic Equity for “Equal Healthy Food for All: Wanju Type Food Plan” in 2022. It was also praised by the Food and Agriculture Organization (FAO) as a successful regional food localization strategy (FAO, 2017). As such, the Wanju Local Food Cooperative is an excellent example of how CSAs can revive themselves and become popular once again.

When the Wanju Local Food Cooperative initially started, they used the traditional American CSA box delivery model. Though they still offer CSA boxes to customers, their success began with their first offline local food shop in 2012, right around the same time that the number of CSAs in the United States started to decrease. To launch their first offline shop, the cooperative created contracts with 1,011 local farmers and developed detailed crop production plans to offer customers a small but diverse selection of produce. Since then, the shop has functioned as an open market for micro farmers who have completed training courses and submitted production plans to sell their produce freely. To ensure the highest quality products, the Wanju Local Food Cooperative maintains a strict list of policies, including: 

• Fresh produce must have been harvested the same morning that it is brought to the market for sale

• Farmers independently pack, display, and price their own produce

• Unsold produce is either discarded or returned to the original farmer

• Farmers pay a 10% commission fee to the cooperative 

Furthermore, the cooperative managing the local food shop extends its services to restaurants within the shop, provides online shopping options, offers food processing facilities to farmers, and even enhances community engagement through agrotourism initiatives such as farm tours and cultural events. As a result, it is common to see residents and tourists flock to the shop early in the morning to buy the freshest locally grown produce and enjoy the restaurants serving local food. This successful local food model spread nationally and became a popular community support model throughout Korea. Because the local food shops offer a variety of the freshest produce, good accessibility in residential areas, competitive prices from competition between farmers, entertainment events, and no exclusive membership or up-front fee policy, these local food shops have established their unique place among local supermarkets and farmers’ markets.

The success of the Wanju Local Food Cooperative underscores two pivotal elements for an effective local food model: minimizing market entry barriers for small farmers and offering a diverse range of produce to customers under one roof. Many small farmers struggle to access markets due to quantity constraints, which deter both existing farmers and potential newcomers. The Wanju Local Food Cooperative has overcome this challenge through its open-market approach.Additionally, while local food consumers do seek shopping experiences that support local farmers and foster community engagement, their primary desire is a convenient location to purchase their weekly groceries. In contrast, the traditional CSA model often receives criticism for its limited selection. However, the Wanju Local Food Cooperative addressed this by coordinating farmers’ production plans to offer a broader array of produce, prioritizing variety over quantity to fulfill the objective of convenient grocery shopping. Therefore, if CSAs in the United States seek to remain competitive with other local food sources and genuinely support community farmers to be more than just a produce box delivery service, they should reconsider their traditional approach to running their organizations. 

References

Food and Agriculture Organization of the United Nations. (2017). Wanju: Supporting Local Agriculture 

through Direct Food Marketing, Milan Urban Food Policy Pact Category: Governance, Food and Agriculture Organization of the United Nations (FAO). https://openknowledge.fao.org/handle/20.500.14283/ca0491en

Seo, F., & Hudson, D. (2023). Attributes that Influence Consumers’ Preferences for 

Choosing Locally Grown Food Sources During and After the COVID-19 Pandemic. Journal of Agricultural and Applied Economics. 2023;55(4):626-650. doi:10.1017/aae.2023.27

Seo, Frank. “Is the Current CSA Model Sustainable? A Lesson from Korea.” Southern Ag Today 4(27.5). July 5, 2024. Permalink

Some people say that growing organically requires a different mindset. Receiving a price premium particularly when demand is high guarantees increased earnings, but many producers shifting to organic put environmental stewardship and personal values at the top of the list. Between 2017 and 2022, the US experienced a notable surge in the organic agriculture sector, with the Census of Agriculture showing increases (about 32%) in organic product sales. However, the number of organic operations dropped from 18,166 to 17,321 (about 5%). 

Growing organic in the South has its own challenges; high pest pressure, high humidity and a region prone to extreme temperatures. As such, organic operations in the South tend to be smaller but are still important contributors to the sector. A closer look at the Census of Agriculture reveals some important changes in organic production for row crops and specialty crops. Arkansas, Georgia, North Carolina and Kentucky about doubled sales, Texas and Florida went up by 50%, and states like Louisiana where organic agriculture does not have a big economic footprint still reported a 12% growth. South Carolina and Texas were the only Southern states reporting a growing number of organic operations.

Another challenge that organic producers face is the USDA certification process. Transitioning to organic requires familiarizing yourself with the certification process and regulations of the USDA National Organic Program (NOP). The recent Census of Agriculture revealed a decrease in the farms with acres transitioning to NOP. Though the numbers may be discouraging, it is worth considering the level of responses the Census received which was low particularly in some states.

Figure 1: Number of farms with acreage transitioning into USDA NOP

It will be interesting to see how producers will respond to the changing production landscape in the near future. As USDA works in amending organic production standards and with the demand for differentiated products continuing to grow will USDA provide more support to organic production? As of now we have seen increased funding in organic production through grants, funding towards development of organic markets under the Organic Market Development Grant program and this is the fourth year that USDA provides cost share assistance for organic certification. Certified organic producers and handlers who have paid certification fees during the 2024 program years may apply for reimbursement of the incurred costs up to 75%. The application deadline is October 31, 2024. For more information see link below: https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/organic-certification-cost-share-program/pdf/2024/fsa_occsp_fact_sheet.pdf

Bampasidou, Maria, and Juna Dylce. “Transitioning to Organic in the South.” Southern Ag Today 4(26.5). June 28, 2024. Permalink

Population in the Southern region of the United States grew the fastest from 2010 to 2020, with a compound annual growth rate of 0.98%, according to the US Census Bureau. (The Pew Charitable Trusts, 2023). Between 2021 and 2022, the population in the Southern region grew by 1.08%. In contrast, the West grew modestly by 0.20%, while the Northeast and Midwest declined by 0.38% and 0.07%, respectively. 

Texas experienced the highest growth in population (1.49%) in the South from 2010 to 2020, followed by Florida (1.37%), South Carolina (1.02%), and Georgia (1.01%). While Mississippi saw a small decline in population (-0.02%), Louisiana (0.27%), Arkansas (0.32%), and Kentucky (0.38%) experienced modest growth. All other states in the South gained population at a healthy pace. Nine of the 15 fastest growing cities are in the South according to the US Census Bureau. 

The increase in population in the South between 2010 and 2022 was primarily due to state-to-state migration, representing on average 85% of residents who lived in a different state a year ago (see Figure below). It is noteworthy that state-to-state migration was prevalent across neighboring states. More recently, post-pandemic domestic migration gains have contributed to population growth particularly in Florida, the Carolinas, and near large metro areas such as Atlanta and Dallas (Rogers et al., 2023). 

The average proportion of migration from foreign countries for the region was 13%. Texas, Florida, and Virginia had the highest share of total migration from foreign countries, representing on average 24%, 20% and 17%, respectively, between 2010 and 2022. Over a third of the nation’s immigrants overall live in the South (Budiman, 2020). Along with some Northern Plains states, the South generally has the highest fertility rates in the country. States such as Texas, Louisiana, Oklahoma, and Arkansas have particularly high fertility rates (CDC, 2022).

Migration Flows in the Southern Region (2010-2022)

Notes:

1. Other migration is the movement of persons from U.S. territories such as Puerto Rico and U.S. Islands Area.
2. State-to-State Migration Flows were not available on the U.S. Census Bureau website for 2020.

Summary and Implications

Population in the Southern United States is growing, mainly in urban and sub-urban areas, compared to other regions of the country. This population shift has significant implications for land use, particularly in terms of residential housing and the provision of supporting services such as schools, libraries, hospitals, recreational facilities, and other systems. As the population move away from rural areas, the revenue and tax base may decline, requiring more resources to support these communities. To promote sustainable growth, communities need better planning, zoning, and resource management strategies to ensure a balanced approach to supporting residents while protecting natural resources and promoting environmental stewardship.  Social planners, policy makers and economic development practitioners can play a pivotal role in helping decision makers pursue higher goals by enhancing the rural-urban linkages to drive social, economic, and cultural transformation of communities.

References:

Biernacka-Lievestro, Joanna, and Alexandre Fall. 2023. Southern States Gain Residents the Fastest. The Pew Charitable Trusts.  https://www.pewtrusts.org/en/research-and-analysis/articles/2023/05/17/southern-states-gain-residents-the-fastest

Blake, Suzanne. 2024. Americans are Flocking to These 3 Southern States. Newsweek. https://www.newsweek.com/americans-moving-south-top-states-1858742

Budiman, Abby. 2020. Key Findings about U.S. Immigrants. Pew Research Center. https://www.pewresearch.org/short-reads/2020/08/20/key-findings-about-u-s-immigrants/

Centers for Disease Control. 2022. National Center for Health Statistics. https://www.cdc.gov/nchs/pressroom/sosmap/fertility_rate/fertility_rates.htm

Economic Research Service, USDA. 2023. Rural-Urban Continuum Codes. https://www.ers.usda.gov/data-products/rural-urban-continuum-codes/

Karlekar, Indraneel, and Julie Laumont. 2024. The U.S. Sun Belt’s Ongoing Boom. Clarion Partners. https://www.clarionpartners.com/insights/sun-belt-apartments-multifamily

Upendram, Sreedhar, Chrystol Thomas, and James Mingie. “Population Change in Southern United States.” Southern Ag Today 4(23.5). June 7, 2024. Permalink