Crop Insurance 101 Webinar Transcript
Welcome to Crop insurance 101 for Beginning Farmers that are Military Veterans.
In this webinar, we will introduce Crop Insurance, how to navigate your options, and new coverage incentives for beginning farmers.
This webinar is brought to you by the University of Maine Cooperative Extension Risk Management and Crop Insurance Education Program which is in partnership with the United States Department of Agriculture-Risk Management Agency.
The Risk Management and Crop Insurance Education Program aims to inform and education farmers on the crop protection options available, and provide risk assessment and business management skills to help improve farmer profitability and reduce risk.
As farmers you will undoubtedly experience some sort of crop loss in your career. Farming is risky business. Based on your experience and knowledge of farming in Maine, what is the top reason Maine crops fail?
Turns out Maine crops fail for a lot of reasons. This chart shows causes of crop failure over the last 10 years. “Excessive Moisture” is the top reason crops fail in Maine, but any of these factors can quickly destroy a business plan.
Having some sort of risk management plan in place each growing season will make your business viable and resilient over the long term. The first step for managing your risks is to assess your risk. Farmers take on many risks in the form of marketing risk, financial, legal, human resource risks, and production risk. Crop insurance is just one way to manage and reduce risk in your farm enterprise.
As farmers its important to assess risk exposure annually by doing some sort of Risk Management Checkup. Filling out a Crop Safety Net table such as this can help identify the costs associated with producing the crops you grow versus the expected value, or revenue, generated from those crops. Its also important to understand the protection choices available for each crop. This information will help you to fully understand Your Risk Exposure and what your farm Safety net should accomplish.
A Farm Safety Net is a set of Farm programs including crop insurance and other assistance programs that provide farmers with protection against risk, such as lost income, limited access to credit, or devastation from natural disaster.
Its up to you to decide what your farm safety net should cover. For example if you experience a crop loss, will your safety net cover production costs? Will your safety net replace livestock feed? Or contribute to family living expenses?
So lets try and understand one aspect of the farm safety net which is Crop insurance.
Crop insurance is a federally subsidized program established in the 1930s to protect farmers from losses caused by from most naturally occurring events. Over the years crop insurance has undergone numerous changes. Currently, the USDA Risk Management Agency also known as RMA administers crop insurance programs and underwrites crop insurance policies for both crops and livestock. Polices are sold and serviced by private insurance companies, and agents sell these policies. Every 5 years changes to crop insurance are addressed in the Farm Bill. In the 2014 Farm Bill, Congress continued to broaden coverage options and made improvements including special incentives for beginning farmers.
There are generally 3 types of insurance coverage options.
The first type protects against yield loss of a single crop caused by the multiple perils of farming including events such as drought, hail, freeze, pests, or excessive moisture to name a few. Crop Insurance does not cover losses due to negligence or failure to follow good farming practices.
The second type of insurance coverage is called revenue protection, and this protects against both yield and price-based loss caused by multiple perils and due to changes in the market price of that crop.
The third type of insurance coverage is called Whole Farm Revenue Protection and this is a new policy as of the 2014 Farm Bill. This policy protects against yield and price- based loss of all crops on the farm as opposed to just individual crops. This plan may be valuable for diverse farms.
So what crops are eligible for coverage?
The answer is, some level of coverage is available for almost every crop grown in Maine, organic and conventional. Coverage can be obtained from 2 different sources as determined by the crop or crops you’re growing and the county they are grown in. The Risk Management Agency provides crop insurance for various crops but not all crops are eligible for crop insurance. For those crop which are non-insurable, or for which insurance is unavailable in an area, producers can obtain coverage through the Noninsured Assistance Program or NAP which is administered through the USDA Farm Service Agency.
The first step in navigating your crop insurance coverage options is to identify the source for that coverage. There are a few tools you can access on the internet to learn about options as they pertain to your specific enterprise. As well, you can always call up a crop insurance agent, FSA county office, or Cooperative Extension for more information.
The USDA Farm Service Agency has an online Crop Eligibility, Premium, and Payment Estimator tool that can be used to determine the source of coverage and to get premium estimates. This tool is one way to get a better idea of the coverage options offered for different crops.
First, select your state, county, and crop. Let’s select lowbush blueberries, notice it says “You have selected a crop covered by RMA.” This means in Hancock county, insurance policies for lowbush blueberries are obtained from a private insurance company. For more info on the cost of blueberry coverage or any other crop covered under crop insurance, the RMA website has a cost estimator which gives detailed information on crop insurance coverage and premiums by crop. As well, contacting a private crop insurance agent is a good next step. It doesn’t cost to ask.
Now, I’m a different farmer and I’m interested in getting coverage for strawberries. I don’t see strawberries on this list, so I’d select “not listed,” and then “strawberries.” This means coverage may be eligible for coverage under FSA’s Non-insurable Assistance Program or NAP. Now I’m prompted to enter some details about the crop.
After we entered some basic data about the crop, some terms appear. Let’s define some of the terms we’re seeing as they are important to understand. The FSA Market Price is the value per unit that is assigned to your crop. This price is generally drawn from data from the National Agricultural Statistics Service or NASS. The market price changes yearly, and you can not modify this price. FSA Expected Yield is the average yield reported by strawberry farmers in this county to NASS, and this is updated yearly. App Closing Date is the date at which you must sign up for the plan to get coverage for that year, and the closing dates differ depending on the crop. The Acreage Report Date is the date at which you need to report the actual acres of strawberries planted. The Unharvested Factor only applies when crop is not harvested.
Now you’d enter data more specific to your farm. Approved yield is based on your historical yield, and there are 3 ways to do this which are listed under this question mark. Ultimately you want to enter a yield that represents your production. If you don’t have an expected yield because you’ve never grown the crop, you can use the FSA expected yield as a proxy. Say our approved yield is 8,000 lbs, and we’ll expect 8,000 lbs this year, and were growing 5 acres of the crop. The Share percentage is the amount of interest you have in that crop. If you and your business partner were equal owners of the crop, then you would put in 50 to represent half ownership. When all of this info is added click “calculate my premium.”
Now we see the different levels of coverage available and the associated premiums. The Basic (or CAT) plan covers 50% of the crop yield at 55% of the price, so I’m guaranteed 4,000 lbs/ac because that is half of my approved yield. Factoring in the market price, I’m guaranteed $4,290/ac of revenue because this assumes 55% of the price. Notice there is no premium listed for the Basic plan, but there is an administration fee.
The next coverage options are what’s called buy-up. With buy-up you can increase yield coverage and opt for 100% of the FSA price. Obviously the premium increases as you elect for greater coverage, here we see the premium range from $400 to over $500 an acre.
Let’s get an idea of the total premium cost for some of these policies by selecting calculate my total premium.
First lets look at what the basic plan would cost. By selecting beginning farmer, the premium discounts will be applied. So for the basic plan, the premium was $0 and the admin fees which would otherwise be $250 are waived due to the beginning farmer incentives. So the basic plan would be free with the beginning farmer discounts.
Lets look at the cost of coverage. If we wanted to increase protection to the Buy-Up level at 65%, select the premium, and enter it in the box. For Buy-up at 65% the admin fee is waived and the premium is reduced by half. Once we have an idea of the cost with each plan, it’s a good idea to run some scenarios to see how much of the crop values will be protected.
How does a Loss play out if I have Basic coverage? Our expected revenue from the strawberry crop is our approved yield X acres planted X the full crop value which is $1.95. So if everything goes well our expected revenue is $78,000. And again, with Basic we’re covering 50% of the yield at 55% of the FSA price.
Say I experienced excessive moisture on my strawberry crop and I report this damage within 72 hours to the FSA office. My actual production was 3,000 lbs/ac, so I subtract that from my 4,000/ac yield guarantee. My loss amount is 1,000 lb/ac. The indemnity, or the amount I will get paid by my policy is the loss x the Basic Price, meaning I’ll get $1,070 ac paid from my policy. There were no admin fees because I’m a beginning farmer. So when I calculate the value of the actual yield x full price, plus the indemnity amount, I earn $6,920 an acre.
From the full 5-acre farm perspective, the Basic policy increased my revenue by over $5,000 compared with having no coverage at all. This is a good deal considering the Basic coverage was free. But say grossing $34,000 is not good enough to cover my expenses. Electing for a higher coverage level would then be better.
Now lets look at how increasing my coverage to a buy-up policy would play out. Here I elected to protect 65% of the yield at 100% of the FSA price. My yield guarantee increases to 5,200 lbs/ac but again I only produce 3,000 lbs ac, so my loss is 2,200 lbs. The loss times the price equals an indemnity of $4,290/ac. Factoring in the premium fee which was reduced by 50% because of the beginning farmer discount leaves me making over $4,000/ac. Applying this to the full 5 acres of strawberries, I earn a total of $49,370 and saved over $14,000 more than the basic coverage. Running these coverage scenarios can help give a better idea of the different levels of protection available. Again, it doesn’t cost to meet with an agent or call up FSA.
As mentioned, beginning farmers are eligible for specific benefits on behalf of the 2014 Farm Bill. It’s important to understand these benefits and how they apply to crop insurance and NAP coverage.
The definition of a “beginning farmer” differs from RMA to FSA, and the benefits change slightly, too. According to the RMA, a beginning farmer is someone who has been farming no more than 5 years whereas the FSA definition says no more than 10 years. Both the RMA and FSA waive the administrative fees so that Basic coverage is free for beginning farmers. For Buy-up there is an additional 10% premium subsidy with crop insurance and premiums are reduced by half with NAP. Lastly, with crop insurance, beginning farmers are allowed to replace a low yield and substitute it with 80% of the applicable transitional yield, or, T-Yield for the crop in the county. As a beginning farmer you’re eligible to receive these benefits during the first 5 years you have insurable crops.
So what documents do you need to bring to a private insurance agent or the FSA office to obtain a policy?
- You must be 18 years of age, or have a parent/guardian signature.
- You must have a SSN, tax id #, EIN if you’re part of an LLC, corporation, or business partnership.
- You must have a bona fide insurable interest in the crop as well as proof of a land deed or lease agreement.
- All of these documents will be used to generate your Farm Serial number which is a number that identifies your farm.
- If you have crop yield data for the crop you want to cover, bring it; if you don’t have yield data, T-yields can be used as a yield proxy.
- Also, try to have a general idea of the acreage you want to plant to that crop.
Ultimately recordkeeping is CRITICAL! The sloppier your records are the less likely you are to get paid fully against losses.
Once you obtain a policy, its important to understand your coverage and the important dates involved with maintaining your policy. These dates are subject to change depending on the crop you’re covering. Putting these dates in your calendar. Understanding the importance of these deadlines is your duty. Importantly, if you have a loss you must report it to your agent or FSA office within 72 hours of your initial discovery of damage.
There are also MicroLoan opportunities for beginning farmers through the FSA. Microloans can be used for initial start-up expenses: annual expenses such as seed, fertilizer, utilities, and hoop houses, to name just a few.
For beginning farmers, the borrowing limit for microloans increased from $35,000 to $50,000. The application process has been simplified and farmers have up to seven years to repay. Lastly, to be eligible for farm ownership loans, FSA requires that individuals to have skills considered to meet the direct “farming experience” criteria required for farm loan eligibility. Leadership positions while serving in the military or advanced education in an agricultural field will now count towards the experience applicants need to show when applying for farm ownership loans.
This concludes our webinar. More information can be found by visiting the Umaine Extension Risk Management and Crop Insurance program website (and for smart phone users click on this QR code to be brought to the site). Also, the USDA RMA and FSA websites contain the cost estimator tools and additional resources.