The federal crop insurance program was designed to help farmers recover some portion of expected income in the advent of a crop loss or failure. Crop insurance helps even out annual income and can reduce the stress of worrying about possible losses.
New commodity programs help farmers manage risk
By Harriet Behar, MOSES
From the November | December 2014 Organic Broadcaster
Organic producers may wish to review these new commodity programs from the Farm Service Agency, even though they are tied to commodity crop prices and either county average production yields or your own historical yields. The new Dairy Margin Protection Program (MPP-Dairy) is similar in that it is based upon average national conventional feed costs and national average conventional milk price, but might be a consideration as a revenue safety net. Organic and non-organic farmers alike will be speculating on future conventional commodity and milk prices, and receiving payments only when prices or yields are very low. These programs have specific details on who can sign up, how to sign up and your options. This article is meant to be an overview. Contact your local Farm Service Agency for more information.
The most recently passed farm bill has put in place a variety of options to the Direct Counter Cyclical Payment program and the ACRE program. The Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs are offered for commodity crop growers to manage both price fluctuations as well as yield-related financial losses for crop years 2014-2018. These programs are tied to the base acres the FSA has assigned to your farm; you should have received notification of your current base acre allocations from FSA in the past month.
Even though FSA base acres have not changed for many decades, and many farmers are planting more commodity crops than in the past, farmers do not have an opportunity in this farm bill cycle to increase base acres. However, they do have the opportunity to reallocate their base acre numbers among a variety of commodities as well as update yields used to calculate payments. In order to be changed, the base and yields must relate to historical production data from the crop years 2009-2012. The timeframe to reallocate base acres and historical yield data with the FSA is Sept. 29, 2014 to Feb. 27, 2015. Farmers who do not elect a change will retain their current base acres and yields.
If you have FSA-listed base acres totaling more than 10 acres, you are automatically enrolled in the PLC program, unless you choose one of the two options of the ARC program. Whichever program you decide to elect by March 31, 2015, will be the program you will remain with for the five years of the farm bill. Two of these programs seek to manage the risk of low prices (PLC), or lower than average yields and low prices (ARC-CO using county yield averages). The third program, ARC with Individual Coverage, is tied to your own historical revenues of the various commodities, but is only paid on 65% of the base acres, rather than 85% of the PLC or ARC-CO.
The PLC program will pay the difference between the “reference price” declared by the FSA, as compared to the “effective” or the “Marketing Year Average Price” (MYA), for each commodity on 85% of the base acreage of each commodity as well as the yield determined at the original signup. Payments are made on each commodity within the base acres and the historical yields, regardless if that specific crop was planted that year or not. ARC-CO uses county average yield and revenue data for the 5 previous years (tossing out the high and low numbers and averaging the remaining three), and pays the farmer if there is a revenue loss according to these numbers during a specific crop year. ARC-IR pays on the actual acres planted of each commodity crop and the historical revenue received from that sale in relationship to the current MYA price. The University of Illinois website has a handy worksheet to help you compare these three commodity crop options to help you decide which, if any, would be useful. See bit.ly/farmbilltool. More information is also available at fsa.usapas.com and fsa.usda.gov.
The Margin Protection Program for Dairy producers replaces the Milk Income Loss Contract (MILC) program. Payments are made to dairy farmers when the margin between national cost of conventional feed and national conventional price of milk are within $4 for the catastrophic coverage and up to $8 for the premium program. Dairy producers must provide proof of their historical milk production, and be willing to pay an annual administrative fee to the FSA of $100. There are no production or income limits, and you must comply with basic conservation requirements. There are a variety of ways to prove your eligibility, manage movement of dairy herds between farms and ways for new operations to be part of the program as well. Existing dairy operations can take the highest annual production history from the previous three years as their production history.
Dairy producers need to register for the program by Nov. 28, 2014 to participate in 2014 and/or 2015. After that, the signup period will be July 1-September 30 of the previous year. This program goes from year to year, and producers must re-sign up to continue. Once signed up for the year, they cannot withdraw or change election until the following year. For the catastrophic (CAT) coverage, producers pay the $100 annual administrative fee which will cover 90% of the milk amount of the production history when the margin falls to $4. Producers can choose to pay an extra premium for margins between $4.50 and $8, with these premiums spelled out in the web link below. At least 25% of the premium is due by February of the applicable calendar year, with the full balance due by June, or coverage will be terminated.
The feed cost calculation was developed from a ration to meet a rolling herd average of approximately 21,000 pounds of milk. By multiplying the national price of corn by 1.0728, the central Illinois price of soybean meal by .000735 and the national price of alfalfa hay by .0137, this cost of conventional feed will be determined. While organic dairy feed costs and organic milk pricing is not tied to non-organic prices, there is some correlation at times. Conventional dairy publications and the FSA will be doing conventional dairy feed and milk price projections, so it might be useful to watch these news releases to see if payments might be a possibility in the coming year, before paying the annual $100 fee or added premium. This link has projected premiums and payments (or lack of) for 2014: bit.ly/MPPDairy. The FSA information bulletin on the MPP-dairy program can be found here: bit.ly/marginprotection.
Risk Management Programs
Lastly, there are new Risk Management Agency-supported crop insurance programs that address the needs of organic producers in a more focused way, such as insurance for pasture and hay ground during times of drought and Whole Farm Revenue insurance that is flexible enough to serve diverse operations of many sizes and types. A future Organic Broadcasterarticle will cover these crop insurance products.
In the past few years farmers in WI, MN and several other states (see list below) have gained access to a new type of insurance coverage that can be very beneficial for their organic systems. Adjusted Gross Revenue- Lite (AGR-Lite) insurance takes into account a five-year history of farm production and sales to determine potential loss values. This “whole farm” insurance system allows organic producers to include the value of any organic premium gained for their products. AGR-Lite insurance was developed in Pennsylvania several years ago, and is slowly spreading into other states.
Other Kinds of Federal Crop Insurance
Organic farmers may choose to insure their crops using one of the other Federal Crop Insurance offerings. However, as of now, indemnities (compensations) are based on conventional rather than organic prices. Hopefully at some point in the future organic premiums will be recognized. The USDA Agricultural Marketing Service (AMS) has for the past year been collecting data on organic prices, yield and loss experience in a move to eventually develop an actuarially sound crop insurance system for organic production. As with AGR-Lite, insurable damage caused by insects, disease or weeds is covered if recognized organic farming practices fail to provide effective control. Premiums for crop insurance on organic lands are an average of 5% higher than those for conventional crops due to a presumption of additional risks involved with organic production.
Currently RMA provides crop insurance coverage for:
- Certified organic acreage,
- Transitional acreage being converted to organic in accordance with an organic plan and,
- Buffer zone acreage.
Contamination on certified, transitional or buffer land due to drift or application of prohibited substances is not considered an insured loss. Any loss due to failure to comply with the organic standards is considered an uninsured cause of loss.
A few key points to using Federal Crop Insurance
Sign up is generally by March 15th each year. A few crops have other sign up dates (ie: cranberries, apples, forage, winter and spring wheat, etc., so please check with your Agent for the exact deadline for your crop.)
Insurance is sold though private insurance agents. Contact your area Farm Service Agency for a listing of local agents that carry crop insurance. You may also find a listing of agents on the USDA Risk Management Agency website at www3.rma.usda.gov/apps/agents/.
Insurable damage caused by insects, disease or weeds is covered if recognized organic farming practices fail to provide effective control.
Other perils such as excess moisture, drought, freeze, storm damage and significant hail damage are also covered.
AGR-Lite Premiums are calculated based on your previous five years of IRS Schedule F forms. You will need to have these with you in order to sign up for a policy.
Resources for Crop Insurance for organic systems:
Updated May 2013: Organic Farming Practices: Insurance Fact Sheet (PDF)
(USDA- Risk Management Agency)
Adjusted Gross Revenue-Lite: Fact Sheet (PDF)
(USDA- Risk Management Agency)
The Center for Agricultural and Rural Development at Iowa State University has released a paper on organic crop insurance, including finding from analyses conducted on organic crop prices, yields, and revenues. The full report is available here.
The Adjusted Gross Revenue (AGR) Program: Crop Insurance for Diversified Agriculture
A fact sheet by the University of Vermont Extension