An economic analysis of cotton gin fires in Missouri, 1956-1958

Abstract

Losses from fires in the ginning industry are reflected in the cost of processing cotton. Many preventive devices are in use, but little is known about their effectiveness. This study was made to provide information about fire losses and savings from the use of preventive equipment in the hope of reducing processing costs including premiums on insurance. There is considerable variation in insurance rates over the Cotton Belt with respect to credits for use of fire prevention devices. The objectives of this inquiry were to determine (1) the effect of preventive devices on frequency and extent of gin fires, (2) the relationship of the amount of cleaning and drying equipment installed in cotton gins to the frequency and extent of losses from fires, (3) the relation of premiums paid for insurance to claims collected from fire losses, and (4) to reveal the legal and regulatory framework in which the fire insurance companies that serve Missouri cotton ginners operate. The Missouri ginning area is confined to seven southeastern delta counties primarily. The acreage of cotton planted has been decreasing gradually, while the yield per acre has been increasing. As mechanical pickers have been used to harvest more and more of the crop during the past decade, the amount of cleaning and drying equipment in gins has increased. Insurance costs have gone up with the advance in investments. The rates charged vary primarily with the type of building construction and degree of protection. Use of preventive devices, location of buildings, housekeeping practices and other items also affect the rates charged. The amount of insurance carried increased materially during the 1956-56 period. Cotton products insurance was provided separately from buildings and equipment and varied with the value of stock on hand. "In-process" losses to products were not covered by this type of insurance. The overall premium-loss ratio for the three years was only 16 per cent, which is much lower than the 50 per cent ratio considered by the Missouri Inspection Bureau as near normal. Factors influencing the number and amount of losses from fire were (1) the amount of cleaning and drying equipment, (2) the method of harvest, and (3) the use of preventive devices. The number of fires and the amount of losses were greater in elaborately equipped gins than in those with medium equipment. The losses per bale averaged about one-half as much in machine harvested cotton as in that harvested by hand, but there was little difference in the number of fires. Preventive devices had some beneficial effect in reducing fire losses. However, devices appeared to have little or no influence on the number of fires occurring. The analysis showed a significant positive relationship between the volume of business and the cost of insurance, and that elaborately equipped gins processed a significantly larger number of bales than the medium gins. The data indicated a significant difference in the average loss by gins with preventive devices as compared to those without only in 1956; however, gins with devices consistently had lower losses annually than did those without them. Companies dealing in insurance could encourage use of these preventive measures through variable premiums based on differences in risk. At the time the data were obtained rates did not appear to reflect the differences in risk adequately.