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Master of Agribusiness

Commodity Indemnity Funds: Alternatives for Wyoming

Keith Kennedy, Burns, Wyoming, defended his thesis, “Commodity Indemnity Funds: Alternatives for Wyoming,” Monday, May 16, 2005. Kennedy is the owner and manager of Agrimind, LLC, a consulting, producer education, and executive management/lobbying firm.

Loss due to warehouse failure has impacted Wyoming crop producers twice between 2000 and 2004. Wyoming legislators and state department of agriculture personnel have devoted considerable time to easing producers’ plight due to these failures. Kennedy examined the actuarial soundness of four funding options for commodity indemnity funds in Wyoming, an alternative not yet examined by policy makers.

He found that a system which assessed both warehousemen and producers, in nearly equal amounts, offered a fund with the lowest amount of variability relative to the size of the indemnity fund. Such a fund also minimizes moral hazard to both producers and dealers. Other simulations considered producer-only assessments, in differing percentages, as well as considering an assessment on sugar production.

“I am hopeful that this study will assist the Wyoming Legislature’s interim agriculture committee, as they draft legislation to be considered in 2006 which would create a commodity indemnity fund,” Kennedy said. “Dry bean, as well as alfalfa seed producers, who suffered losses due to the Mountain States Commodity failure or the ABT bankruptcy would have been indemnified for a portion of their losses, if such an indemnity fund had been in place at the time of these failures.”

“Wyoming ought to be proud of Keith,” Major Professor, Terry Kastens, said. “He carefully scoured the workings of commodity indemnity funds in other states, providing a useful legislative framework in which to move forward in Wyoming. Even more importantly, he quantitatively analyzed reasonable alternatives for such a fund in Wyoming, providing the necessary dollars and risk framework in which legislators can make more informed decisions. In the end, both Wyoming’s taxpayers and farmers ought to benefit from Keith’s work.”