In search of more workable whole farm insurance options
By Sara Wyant
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, March 10, 2014 - Compared to the more popular options available to farmers and ranchers, “whole farm” insurance might be considered the Rodney Dangerfield of the industry. These plans, which aim to protect against low farm income based on historical Internal Revenue Service filings of Form 1040 (Schedule F), haven't gotten much respect or attention since they were introduced in 1999.
In fact, only about 800 whole farm insurance policies, known as Adjusted Gross Revenue (AGR) and Adjusted Gross Revenue-Lite (AGRLT) were sold in 2013 with premiums of almost $17.4 million. The majority were sold in Washington state (483 policies) and Oregon (95 policies). That's a relative drop in the bucket, compared to almost 1.4 million revenue-based crop insurance products with premiums of about $9.4 billion.
But these whole farm approaches - which have been especially attractive to some small, diversified farmers and specialty crop producers - are about to change as a result of provisions in the Agricultural Act of 2014, also known as the Farm Bill, as well as modifications that USDA's Risk Management Agency (RMA) hopes to implement, starting in 2015.
At the urging of Agriculture Secretary Tom Vilsack, RMA officials met last summer with a wide variety of stakeholders, including some farmers with Community Supported Agriculture (CSA) operations, explained RMA Administrator Brandon Willis during an exclusive interview with Agri-Pulse. The group, organized by the National Sustainable Agriculture Coalition (NSAC), shared a long list of concerns about AGR and AGRLT.
“There are two main reasons why our growers are reluctant to buy these policies,” noted James Robinson, research and policy associate for Rural Advancement Foundation International (RAFI), based in North Carolina. “It's not cost effective because you have to have such a significant loss in order to get a payment and the premiums aren't worth it. And the policies are too complex for agents to administer and for growers to understand.”
But Robinson said growers attending the meeting had other concerns, as well.
“If you are selling to a farmers' market, you have to put eggs in a carton or cabbage in a box. Those post-production expenses have to be taken out of insurable revenue,” he explains. However, new Farm Bill language now allows RMA to include some post production expenses.
With AGR and AGRLT, a producer can insure at a coverage level of up to 80 percent of farm-average gross revenue over the previous five years. Indemnities are paid if a producer suffers a shortfall relative to the revenue guarantee. The amount of the loss covered by the insurance is the difference between actual revenue and the guarantee, multiplied by a 90 percent payment rate. Both AGR and AGRLT require a producer to submit annual farm plans so that coverage can be adjusted to account for changes such as farm size and enterprise mix.
Another challenge deals with expansion. Any grower who wants to expand coverage under these policies has to have a history of expansion before he or she can insure beyond average revenue. So if a producer gets 10 additional acres to start producing a specialty crop and has anticipated revenue of $1 million but a historical revenue of only $800,000, only 80 percent of the historical revenue can be covered.
RMA is working on a new whole-farm insurance product that will “combine AGR and AGRLT and reflect direction provided in the Farm Bill,” Willis says.
Key changes would lift the coverage level up to 85 percent and include coverage of packing, washing, grading, packaging and other costs required to get the crop to market.
In addition, the new Farm Bill has two other key provisions - one is a stronger diversification bonus than is currently available under AGR and AGR lite, in recognition of the inherent risk reduction gained through more diverse cropping or cropping/livestock systems, says Ferd Hoefner, policy director for NSAC. The second is that the new product is to be made available nationwide.
“Expansion nationwide may not be possible right away for the 2015 crop insurance year, but we hope it will be the reality within a year or two,” Hoefner explains. “One of the things holding back AGR and AGR-Lite is that it is checkerboard coverage, with entire states and large parts of other states left out of the action.”
Willis says these improvements should be especially helpful for highly diversified farms and farms selling two to five different crops to wholesale markets.