Risk Management and Crop Insurance

United States Department of Agriculture Risk Management Agency June 15, 2022

The USDA Risk Management Agency (RMA) helps farmers manage their business risks through effective, market-based risk management solutions.  As part of its mission, RMA provides Federal crop insurance to producers through the Federal Crop Insurance Corporation (FCIC).  While private-sector insurance companies sell and service the policies, RMA approves and supports products, develops and approves premium rates, administers premium and expense subsidies, and reinsures the private companies.  RMA also supports educational and outreach programs on managing farming risks.

Crop and revenue insurance are important risk management tools available to America’s farmers, however, the New England states are considered “underserved states” by RMA because insurance enrollment by farmers in this region continues to be less than the national average.  Since its creation in 1996, RMA, in collaboration with New England Land Grant Universities, State Departments of Agriculture and private industry, have been reaching out to growers and agricultural professionals to make them aware of the opportunities, as well as the limitations, of crop insurance policies. The results of these efforts have steadily improved farmer understanding and use of crop insurance in the region.

Since 2000, existing insurance policies have been significantly modified and new products introduced to better suit the unique needs of the region’s growers.  Federal Crop Insurance is available in New England in select states and select counties for farmers who grow sweet corn (available in all counties), potatoes and green peas when production losses occur due to adverse weather and other insured causes.  For other noninsured vegetable crops, a grower may submit a written request for crop insurance coverage by completing and submitting appropriate forms through their crop insurance agent.  Alternatively, protection for these other noninsured vegetable crops is available from the USDA - Farm Service Agency (FSA) through the Noninsured Crop Disaster Assistance Program (NAP).  NAP coverage provides a catastrophic level option, which allows a producer to protect 50% of their historical yield at 55% of the average market price.  NAP provides a “Buy-Up” coverage option, allowing farmers to insure up to 65% of their historical yield at 100% of the average market price.  Vegetable producers interested in learning more about NAP, coverage options and anticipated costs of NAP coverage are encouraged to contact the FSA Office that serves their farming operation.

For an overall revenue coverage option, Whole-Farm Revenue Protection (WFRP) provides coverage for all crops grown on a farm under one policy by insuring farm revenue losses due to unavoidable natural causes.  WFRP coverage was first available for the 2015 season, replacing the Adjusted Gross Revenue (AGR) pilot program.  For the 2022 crop year, RMA introduced the Micro Farm Program, which is a revenue based policy for operations with up to $100,000 in approved revenue, including farms with specialty or organic crops and those farms that market directly to consumers.

For more information about RMA, crop insurance policies and risk management strategies go to the RMA website at http://www.rma.usda.gov/ [1]. Specific information about polices for each New England State can be found by clicking on the “Commodities” Tab on the RMA home page and then looking up the commodity and selecting the appropriate State.

You can locate a crop insurance agent online at: http://www.rma.usda.gov/en/information-Tools/Agent-Locator-Page [2].  Keep in mind that crop insurance agents are not employees of RMA or FCIC, rather, they or their company contract with USDA to sell and service Federal crop insurance policies.  More importantly, crop insurance agents are the professionals with on-the-ground experience and knowledge of what works and what doesn’t for a particular situation.  Spending time with an agent can help you decide if and how crop or revenue insurance might best fit your needs.

Is now the time to be covered by Federal crop insurance? Let’s consider a few important factors which may help you decide:

  • The volatility of farm income has increased significantly over the past few decades. Environmental and economic conditions have led to greater variability and uncertainty in farm sales and profits.
  • There has been a trend away from Congress funding the common “disaster based programs” that have sometimes provided “free insurance” in areas where losses are catastrophic.  Congress is under increasing pressure to encourage growers to share in the management of farming risks.  
  • Lenders see Federal crop insurance as a means to reduce their risk exposure, improving a farmer’s eligibility, as well as an opportunity, to secure better loan terms.
  • Federal crop and whole farm revenue insurance can be a very good value if the coverage fits your needs. Due to significant ongoing subsidies from the federal government, farmers do not pay for the full cost of coverage. For the Fresh Market Sweet Corn policy, the Federal government subsidizes from 55 to 100 percent of the premium cost depending on the coverage level selected by the grower. For the Potatoes and Green Peas policies, subsidies range from 55 to 67 percent.     

Federal crop and revenue insurance policies, along with NAP coverage for noninsured crops is your primary protection if a natural disaster were to damage your crops.  If coverage makes sense for your upcoming growing season, find out more information as soon as possible. Keep in mind that many applications must be completed in the fall or winter prior to planting.

This information is provided by The United States Department of Agriculture's Risk Management Agency (RMA), in cooperation with the Extension programs of the New England states. Developed by Michael Sciabarrasi, Extension Professor (Retired), UNH Cooperative Extension and updated by Paul Russell and Thomas Smiarowski, Agricultural Risk Management Educators, UMass Extension.

The Big Five Risks Faced by Farmers

As you think about managing risk to stabilize farm income, there are five basic sources of agricultural risk that you should address: Production, marketing, financial, legal, and human resource risks. Various tools and strategies can be used to manage each of these risks.

1) Production Risks

Production risks relate to the possibility that your yield or output levels will be lower than projected.  Major sources of production risks arise from adverse weather conditions such as drought, freezes, or excessive rainfall at harvest or planting. Production risks may also result from damage due to insect pests and disease despite control measures employed, and from failure of equipment and machinery such as an irrigation pump. 

 Strategies to manage production risks include:

  • Follow recommended production practices.
  • Diversify enterprises by growing different crop varieties and completely new crops.
  • Expand production through more intensive growing practices or by planting more acreage.
  • Purchase federal crop insurance coverage to stabilize income during times of loss and purchase NAP coverage for noninsured crops.
  • Adopt risk mitigating practices such as drip irrigation, tile drainage, trap crops or resistant varieties.
  • Consider site selection - use fields less susceptible to frost or pests and rotate crops.
  • Maintain equipment and keep facilities in good working condition.

2) Marketing Risks

Marketing risks relate to the possibility that you will lose the market for your products or that the price received will be less than expected.  Lower sales and prices due to increased numbers of competing growers or changing consumer preferences are common sources of marketing risk.  Marketing risks can also arise from loss of market access due to a wholesale buyer or processor relocating or closing, or if a product fails to meet market standards or packaging requirements.

Strategies to manage marketing risks include:

  • Develop a marketing plan with realistic sales forecasts and target prices.
  • Form or join a marketing cooperative to enhance prices and guarantee a market.
  • Increase direct marketing efforts to capture a higher price.
  • Market through multiple channels or outlets to reduce reliance on a single market.
  • Enter into sales or price contracts with buyers.
  • Spread harvest and sales over the season by scheduling planting and considering storage.
  • Conduct essential market research - understand your customers’ needs and preferences.
  • Purchase Whole-Farm Revenue Protection to cover unexpected decline of market prices during the growing year.

3) Financial Risks

Financial risks relate to not having sufficient cash to meet expected obligations, generating lower than expected profits, and losing equity in the farm.  Sources of financial risk commonly result from production and marketing risks described earlier. In addition, financial risks may also be caused by increased input costs, higher interest rates, excessive borrowing, higher cash demand for family needs, lack of adequate cash or credit reserves, and unfavorable changes in exchange rates.

Strategies to manage financial risks include:

  • Develop a strategic business plan.
  • Monitor financial ratios and enterprise benchmarks.
  • Control key farm expenses - consider other suppliers and alternative inputs.
  • Conduct a trend analysis to assess change in farm profits and owner’s equity over time.
  • Consider purchasing Whole-Farm Revenue Protection to provide a safety net in poor earning years.
  • Communicate and renegotiate agreements with suppliers and loan terms with lenders.
  • Consider leasing and rental options rather than purchasing machinery, equipment or land.
  • Evaluate the possibility of expanding or contracting different enterprises.
  • Control or defer unnecessary family and household expenditures.
  • Find off-farm employment for a family member, preferably a job with benefits such health insurance, group life insurance, and a retirement program.
  • Use non-farm investments such as IRAs or mutual funds to diversify your asset portfolio.

4) Legal and Environmental Risks

In part, legal risks relate to fulfilling business agreements and contracts. Failure to meet these agreements often carry a high cost.  Another major source of legal risk is tort liability - causing injury to another person or property due to negligence.  Lastly, legal risk is closely related to environmental liability and concerns about water quality, erosion and pesticide use.

Strategies to manage legal risks include:

  • Review business insurance policies and carry sufficient liability coverage.
  • Choose a different business legal structure – as an example, a sole proprietorship is not always best.
  • Understand business contracts and agreements - ask questions if you are unsure.
  • Develop good relationships with neighbors and address their concerns.
  • Use good agricultural practices to limit environmental risk.
  • Know and follow state and federal regulations related to your farming operation.

5) Human Resource Management Risks

Human resource risks pertain to risks associated with individuals and their relationships to each other.  These relationships include those with family members, as well as farm employees and customers.  Key sources of human resource risk arise from one of the “three D’s” — divorce, death, or disability. The impact of any of these events can be devastating to a farm.  Human resource risks also include the negative impacts arising from a lack of people management skills and poor communications.

Strategies to manage human resource risks:

  • Develop and practice good “people skills” with family members, as well as employees.
  • Evaluate alternative sources of labor.
  • Provide adequate training for employees - formalized programs may help your safety record and improve performance.
  • Communicate with employees and family members.
  • Recognize and reward good performance.
  • Review wills, trusts, and powers of attorney.
  •  Initiate estate transfer and business succession planning.
  •  Consider health and life insurance needs.

Managing risk starts with identifying the most crucial risks you face; understanding the potential impacts and likelihood of undesirable outcomes; and, identifying and taking possible steps to mitigate or lessen the impacts.  It’s unlikely any one person understands all the areas of risk faced by a family farm. If you don’t know the answer or find it difficult to initiate risk management planning on your own, get assistance from Cooperative Extension, USDA, attorneys, bankers, insurance agents, and other service providers.  

Written by Michael Sciabarrasi, Extension Professor (Retired), Agricultural Business Management, UNH Cooperative Extension.

 

Federal Crop Insurance Policies

Federal Crop Insurance Policies for Vegetable Crops in New England*

Connecticut Fresh Market Sweet Corn, Potatoes
Maine Fresh Market Sweet Corn, Green Peas, Potatoes
Massachusetts Fresh Market Sweet Corn, Potatoes
New Hampshire Fresh Market Sweet Corn
Rhode Island Fresh Market Sweet Corn, Potatoes
Vermont Fresh Market Sweet Corn

*Not all counties in a state offer the policies listed above, check with a Federal Crop Insurance agent to see if a crop is covered in your county.

Fresh Market Sweet Corn

Available in all New England state and counties. Acreage planted to sweet corn to be harvested and sold as fresh market sweet corn is insurable for irrigated and non-irrigated acreage. To be insured, the producer must have grown sweet corn for commercial sale or participated in managing a sweet corn farming operation in at least one of the three previous crop years.
Exclusion: Sweet corn inter-planted with another crop or in established grasses or legumes is not insurable. (However, using approved cover crop practices may not affect insurability.)

Causes of Loss

This policy protects against crop loss due to drought, excess rain, excess wind, freeze, hail, failure of irrigation water supply, fire, and wildlife.

NOTE: This policy does not cover any loss of production due to disease or insect infestation, unless effective control measures do not exist for such infestation. This policy also does not cover failure to market the sweet corn, unless such failure is due to actual physical damage caused by an insured cause of loss that occurs during the insurance period.

Insurance Period

Coverage begins when the sweet corn is planted.  Coverage ends the earliest of (1) total destruction of the crop, (2) harvest of the acreage insured, (3) abandonment of the crop, (4) final adjustment of a loss, or (5) end of insurance date (check with your crop insurance agent for the date for your state and county).

Reporting Requirements

A report of all insured acreage of fresh market sweet corn in the county must be submitted to your crop insurance agent by July 15.

If a loss occurs, you must notify your crop insurance agent within 72 hours of your initial discovery of damage (but not later than 15 days after end of insurance period).

Definitions

Allowable Cost: An amount not to exceed $4.15 per container for harvesting and marketing costs (e.g., picking, hauling, packing, shipping, etc.) is subtracted from the average price received to determine value of sold production.
Container: Fifty ears of fresh sweet corn.
Minimum Value: A minimum value of $6.50 per container will be used to determine value of any sold production valued at less than $6.50 after subtracting allowable cost.
Reference Maximum Dollar Amount: The value per acre established for the state.  Amounts vary by state, so check with a crop insurance agent to determine the Reference Maximum Dollar Amount for your operation.
Coverage Amount: A guaranteed dollar amount of coverage that you select prior to planting. Equals the reference maximum dollar amount times the level of coverage selected.
Stage Guarantee: If a covered crop loss occurs during the first stage of growth (from planting through beginning of tasseling), the indemnity is reduced to 65% of the guarantee.

Coverage Levels & Premium Subsidies

Instead of guaranteeing production, this policy guarantees a dollar amount of coverage, depending on the level of coverage selected. Crop insurance premiums are subsidized as shown. For example, if you select the 75% coverage level, the premium subsidy is 55% and your premium share is 45% of the base premium:

Item     Percent      
Coverage LEVEL CAT 50 55 60 65 70 75
Premium Subsidy 100 67 64 64 59 59 55
Your Premium Share 0* 33 36 36 41 41 45

*Catastrophic Risk Protection (CAT) is 100% subsidized with no premium cost to you.  CAT insureds pay an administrative fee of $655 (beginning with the 2020 crop year), regardless of the acreage.

Loss Example

A loss occurs when the crop value falls below the guaranteed dollar amount as a result of damage from a covered cause of loss.

NOTE: Revenue losses caused by low market prices or low consumer demand are not covered.

The example below is based on a dollar guarantee of $1,723 per acre.  This example assumes 50 containers per acre were produced and sold for $12 per container, less allowable cost of $4.15, yields a net value of $7.85 per container.

$1,723    Dollar amount of coverage selected per acre
-    393    Production value per acre (50 containers @ $7.85)
=$1,330  Loss per acre                                                                                                     
The net indemnity payment will be the loss per acre times the acres covered minus the grower’s premium payment for insurance coverage.

Potatoes

Available in specific counties in Connecticut, Maine, Massachusetts, Rhode Island.

Potatoes planted with certified seed for harvest as either certified seed stock or for human consumption may be insured. The policy does not cover any acreage where potatoes are 1) inter-planted with another crop or 2) planted into an established grass or legume.

Causes of Loss

This policy protects against crop loss due to drought, excess rain, excess wind, freeze, hail, failure of irrigation water supply, fire, and wildlife.

NOTE: This policy does not cover any loss of production due to disease or insect infestation, unless effective control measures do not exist for such infestation. For added premium cost, additional endorsements related to storage and quality coverage are available.

Insurance Period

Coverage begins when potatoes are planted. Coverage ends the earliest of (1) total destruction of the crop, (2) harvest of the crop, (3) abandonment of the crop, (4) final adjustment of a claim, or (5) end of insurance date (check with your crop insurance agent for the date in your county).

Reporting Requirements

You must provide an acreage report to your crop insurance agent of all the acres of potatoes in the county in which you have an ownership share by July 15.  If damage occurs, you must notify your crop insurance agent within 72 hours of your initial discovery of damage.

Definitions

Certified Seed: Potatoes entered into the potato certified seed program and meet all requirements for production to be used to produce a seed crop for the next crop year or potato crop for harvest for commercial uses in the next crop year.
Approved Actual Production History (APH) Yield: A yield based on your actual yields, county average yields, or a combination of both. APH is used to determine your production guarantee.
Production Guarantee: Hundredweight (CWT) guaranteed per acre determined by multiplying your approved APH yield by the coverage level percentage you select.
Tuber Rot: Any soft, mushy, or leaky condition of potato tissue including, but not limited to, breakdown caused by Southern Bacterial Wilt, Ring Rot, or Late Blight.

Coverage Levels & Premium Subsidies

Coverage levels range from 50 to 85% of your average yield. Crop insurance premiums are subsidized as shown below. For example, if you select the 75% coverage level, the premium subsidy is 55% and your premium share is 45% of the base premium.

Item     Percent          
Coverage LEVEL CAT 50 55 60 65 70 75 80 85
Premium Subsidy 100 67 64 64 59 59 55 48 38
Your Premium Share 0* 33 36 36 41 41 45 52 62

*Catastrophic Risk Protection (CAT) is fixed at 50% of your average yield and 55% of the price election. CAT is 100% subsidized with no premium cost to you except for an administrative fee of $655, regardless of the acreage.

Loss Example

A loss occurs when your actual production per acre falls below the guaranteed production per acre.

The example below assumes an average yield of 260 CWT per acre, 65% coverage level, no options or endorsements and one basic unit.

260 CWT per acre average yield (APH)                                               
x 0.65 Coverage level percentage (expressed as a decimal)                    
= 169 CWT per acre guarantee

169 CWT per acre guarantee – 89 CWT (actual production/acre) = 80 CWT per acre loss (which is then multiplied by # of insured acres and price election to determine Indemnity payment after subtracting the premium). 

Download More Information from the Web at:
www.rma.usda.gov [3]

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or a part of an individual’s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, complete, sign and mail a program discrimination complaint form, (available at any USDA office location or online at www.ascr.usda.gov [4]), to: United States Department of Agriculture; Office of the Assistant Secretary for Civil Rights; 1400 Independence Ave., SW; Washington, DC 20250-9410. Or call toll free at (866) 632-9992 (voice) to obtain additional information, the appropriate office or to request documents. Individuals who are deaf, hard of hearing, or have speech disabilities may contact USDA through the Federal Relay service at (800) 877-8339 or (800) 845-6136.

 

 

Non-Insured Crop Disaster Assistance Program (NAP)

USDA’s Farm Service Agency’s (FSA) Noninsured Crop Disaster Assistance Program (NAP) provides financial assistance to producers of non-insurable crops when low yields, loss of inventory or prevented planting occur due to a natural disaster.

Eligible Producers:  An eligible producer is a landowner, tenant or sharecropper who shares in the risk of producing an eligible crop and is entitled to an ownership share of that crop.  An individual’s or entity’s average adjusted gross income (AGI) cannot exceed $900,000 to be eligible for NAP payments.

Eligible Crops: Eligible crops must be commercially produced agricultural commodities for which crop insurance is not available. Crop insurance agents can answer questions about insurability of crops in specific counties. FSA county offices can provide information on whether a given crop is eligible for NAP coverage.

Eligible Causes of Loss include the following natural disasters:

  • Damaging weather, such as drought, freeze, hail, excessive moisture, excessive wind or hurricanes;
  • Adverse natural occurrences, such as earthquake or flood; and
  • Conditions related to damaging weather or an adverse natural occurrence, such as excessive heat, plant disease, volcanic smog or insect infestation.

The natural disaster must occur during the coverage period, before or during harvest, and must directly affect the eligible crop.

Coverage Level: NAP provides catastrophic level (CAT) coverage based on the amount of loss that exceeds 50 percent of expected production at 55% of the average market price for the crop.

Producers have the option of purchasing additional coverage levels ranging from 50% to 65% of production, in 5% increments, at 100% of the average market price.  Additional coverage must be elected by a producer by the application closing date.  Producers who elect additional coverage must pay a premium in addition to the service fee.  Crops intended for grazing are not eligible for additional coverage.

Applying for Coverage: Producers must apply for NAP coverage and pay the applicable service fee at the FSA office where their farm records are maintained.  Application closing dates vary by crop.

Sales Closing Dates: The sales closing dates for eligible crops are established by each FSA State Committee. Generally, the closing date is in mid-March for most annual crops in New England and mid- to late-November for perennial crops. Honey, maple, nursery and floriculture crops have different closing dates. It’s important to check with the FSA office in your state for the exact dates.

Administrative Fees and Premiums: For all coverage levels, the 2018 Farm Bill increased the NAP administrative fee to $325 per crop, with a limit of $825 per producer per county, not to exceed $1,950 per producer nationwide.

Producers who elect additional coverage must also pay a premium equal to the producer's share of the crop times the number of eligible acres devoted to the crop times the approved yield per acre times the coverage level times the average market price times a 5.25% premium fee.

The NAP administrative fee does not apply if you meet the definition of a beginning farmer, limited resource farmer, socially disadvantaged farmer, or veteran farmer.  Individuals listed above are also eligible for a 50% reduction to the cost of additional coverage under NAP.  Contact your local FSA Office to see if you qualify along with the required reporting requirements.

More Information: More information on NAP is available from your local FSA office. Alternatively, you can go to FSA's website at https://www.fsa.usda.gov/programs-and-services/disaster-assistance-program/noninsured-crop-disaster-assistance/index [5] which features an online tool to help you determine crop eligibility and premium costs.

Whole-Farm Revenue Protection

Whole-Farm Revenue Protection (WFRP) provides a “safety-net” for all commodities on the farm under one insurance policy. The Micro Farm Program was introduced beginning in the 2022 crop year,  Micro Farm follows the basic provisions of the WFRP policy and has reduced reporting requirements but is only available for farms with up to $100,000 in approved revenue.  

WFRP replaced and improved upon the two previous whole farm revenue insurance products AGR (Adjusted Gross Revenue) and AGR-Lite (Adjusted Gross Revenue-Lite).  By protecting agricultural income rather than crop yields, WFRP extends insurance options to farmers with diverse production and specialty crops, and to farmers relying on local and direct markets, much like AGR.  However, the subsidies available for WFRP (up to 80%) are significantly higher than those under the prior AGR program.

Basics

WFRP provides protection against loss of insured farm revenue due to unavoidable natural causes. Insured farm revenue is the farm’s approved revenue times the coverage level selected. Coverage levels range from 50% to 85%, increasing in 5% increments.

  Approved revenue is based on the lower of:

  • The farm’s historic average revenue which is derived from 5 consecutive years of a producer’s IRS tax forms; or
  • The expected revenue for this insurance year

Revenue from all commodities on the farm are covered, except timber, forest and forest products, and animals for sport, show, or pets. Also, revenue from livestock, nursery and greenhouse plants cannot exceed 35% of the farm’s expected revenue (with coverage limited to $2 million for each).

Losses occur when the allowable revenue from the production of commodities produced during the insurance year falls below the insured farm revenue.  Notice of losses must be submitted to your crop insurance agent within 72 hours after discovery that farm revenue could be below insured revenue. Claims are made after farm taxes are filed for the insurance year, but no later than 60 days after tax forms have been submitted to the IRS.

WFRP can be purchased alone or in conjunction with other Federal crop insurance policies. When purchased together, the WFRP premium is reduced because of coverage provided by the other policy.

Eligibility

Some of the key WFRP eligibility requirements are that you:  

  • Be eligible to receive Federal benefits;
  • Be a US citizen or resident;
  • File a Schedule F tax form (or acceptable substitute);
  • Have 5 consecutive years of farm tax history;
  • Have no more than $8.5 million in insured revenue;
  • Have no more than 50% of total revenue from commodities purchased for resale; and
  • Meet the diversification requirement of having two or more commodities if there are potatoes grown on the farm.

Application

The WFRP sales closing date for the New England states is March 15.  To obtain coverage good records are needed. In addition to an application form, producers will need:

  • A whole-farm history report showing historical revenues and expenses with supporting information; and
  • A farm operations report showing intended production plans for the farm during the insurance year.

A revised farm operations report is due on July 15, noting any significant changes for the farm.

More Information on the Whole-Farm Revenue Protection program:

http://www.rma.usda.gov/Policy-and-Procedure/Insurance-Plans/Whole-Farm-Revenue-Protection 

More Information on the Micro Farm Program:   

https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Micro-Farm-Program 

or contact:
Raleigh Regional Office
4405 Bland Road, Suite 160
Raleigh, NC 27609
Phone: (919) 875-4880

If you want to talk with a crop insurance agent about WFRP, a list of agents in your area may be obtained at: https://www.rma.usda.gov/en/information-Tools/Agent-Locator-Page

Written by Michael Sciabarrasi, Extension Professor (Retired), Agricultural Business Management, UNH Cooperative Extension.  Updated by Paul Russell & Thomas Smiarowski, Agricultural Risk Management Educators, UMass Extension.