Can crop insurance help you?
Note: This is intended only to prompt interest
in learning more and is not a complete
primer on crop insurance.
Crop insurance: Like it, hate it, or don't know how it works?
If you like it, it is likely a claim paid off when you needed it. Nationally, more than $8.1 billion in crop insurance claims were paid in 2011.
Note: This is intended only to prompt interest in learning more and is not a complete primer on crop insurance.
Engelbert Farms in Nichols, N.Y., was devastated by the fall 2011 flooding. Kevin Engelbert says the water was on the roof of the barns and destroyed some 400 acres of crops and hayfields. The organic dairy had to cull 35 cows due to lack of feed, and scrambled to purchase enough to keep going. Engelbert says, "2012 is going to be a tough year. We are getting back on our feet one day at a time. We had not had crops insurance before, but we will now."
PHOTO COURTESY OF ENGELBERT FARMS.
A fellow grower introduced California citrus and avocado grower Ray Lodge to crop insurance. Within two years of insuring his 90 acres of organically grown crops disaster struck.
"We suffered a long drought in the late 1990s to 2004. Even though we can irrigate, we are totally dependent on ground and surface water. We need the winter rains to promote tree vigor and sizable fruit. The drought produced smaller individual fruit that was not packable," Lodge explains.
"Having crop insurance made a monumental difference. The days of walking down the street to your bank for a bridge loan are gone. That early crop insurance was invaluable to us," he says.
Lodge increased his coverage and the insurance paid off again.
"In 2007 hurricane-force fire winds ripped and scarred the majority of our fruit. That was a true force majeure that no one could control," Lodge says.
If you hate insurance, it may have cost you precious cash and you have not had to use it - yet.
"Farmers who self-insure often find out they have understated their risk exposure and ability to weather the loss of crop and income when disaster strikes," says Gene Gantz with the USDA Risk Management Agency. Gantz has been talking to America's farmers about crop insurance for more than 40 years.
In 2011, flooding devastated communities and farms throughout the northeastern U.S.
"Many of our neighbors suffered the damage without insurance. Some may lose their farms," said Judi Whittaker, an agricultural advocate and past New York Farm Bureau Foundation Board Chair.
CY Farms Managing Partner Craig Yunker in western New York designates one of 65 employees to handle the 5,600-acre business' applications, tracking, reporting and claims.
PHOTO BY ROCCO LAURIENZO.
With husband Scott and son Brock, Judi operates a 480-cow dairy farm in Broome County, hard hit by Hurricane Irene and Tropical Storm Lee. The loss countywide was estimated in thousands of acres of field and feed crops, vegetables, fruits and flowers worth millions of dollars.
When some neighbors faced difficulties making claims with their insurers, the politically savvy Whittaker contacted U.S. Sen. Kirsten Gillibrand, who helped bring common sense to bear on claims for clearly damaged crops that should not enter the food chain.
The price of federally subsidized insurance policies is set, so sellers distinguish themselves by the quality of their service. Regularly talking with farmers like Whittaker can help identify agents of good report.
"Our 2011 experience will definitely drive who we purchase coverage from in 2012," Whittaker says.
Dr. Laurence Crane with National Crop Insurance Services points out: "Crop insurance is dynamic and changes [from] year to year. Just because it has not worked for you in the past, does not mean it won't work now. Sit with your agent on an annual basis to learn about new products that might fit your needs."
Need to know more?
If you don't know how crop insurance works, you are not alone. Nationally, 75 percent of all eligible acres are insured; in New England, only 50 percent are covered.
Maryland to Maine is a traditionally low participation area.
Patricia Maher with Maine's Cooperative Extension crop insurance education program says, "Individual crop policies were first written for Midwest grain, corn and soybean growers. That is not agriculture in Maine, nor in a lot of New England, so we come to the table late with a need for coverage for smaller and diversified farms. The more recent whole-farm revenue options are a much better fit for Maine's farms."
In New York, State Department of Agriculture and Markets Crop Insurance Education Program Manager Sarah Johnston says, "Only approximately 50 percent of New York's eligible acres are covered by crop insurance."
In northern New York, cold-hardy grape grower Richard Lamoy needs an agent and a policy. Lamoy has assisted Northern New York Agricultural Development Program grape research at Cornell University's E.V. Baker Farm and conducted his own vineyard trials with Northeast Sustainable Agriculture and Research Education funding. In 2011, he lost half of his crop to Hurricane Irene.
"Mine was an additionally significant loss as the grapes I am growing here are not available for purchase to replace them," he says. "Alas, there is no insurance coverage specifically for grapes in the Champlain Valley. NAP coverage is very limited, but it is a start. In my opinion, this needs rectifying if we are to succeed here with grapes and wine."
Do the math
Do your homework to learn the good, the bad and the ugly of farm insurance, and then weigh it all against a working understanding of your farm business. To successfully secure insurance, "producers need to determine expectations based not on what they want the coverage to cost, but on what their farm business will need for cash flow, bank payments and other considerations in the event of a loss," Gantz says. "Determine your expectations based on a policy and buy accordingly. Expectations should not exceed what the policy can do. If you expect it to pay off dollar for dollar, you will have had a huge wreck."
Gantz notes, "In 2010-2011, if you did not experience a loss personally, you likely knew someone who did. Ask yourself what you need to protect yourself for 2012 risks. Run your numbers and have a number in mind when you talk with an agent. Ask your agent to check your figures. If you don't know what you need, you probably won't get it."
Educate yourself online
Self-paced online research is a good way to develop questions to take to neighbors, meetings and agents. Lodge encourages growers to "spend a few hours to study and Google. It is dollar-wise to check the benefits crop insurance can offer your particular crop. I think you will see that the risk/reward ratio is in your favor."
Find a good agent
Ask neighbors who have suffered a loss how their agent responded. Gantz says, "Find an agent with a sharp pencil who knows the costs of running a farm and is willing to answer your questions, visit your farm and help you." If you sell to processors, ask if they encourage the use of a specific carrier.
Ask for a side-by-side
Call competing agencies to evaluate services and response. Ask for a side-by-side comparison to see the benefits and costs of different policies in clear terms.
Ask about limitations
"Ask your agent to explain factors that limit coverage, for example, exclusions for failure to follow recognized farming practices or the inability to market a crop because of quarantine. AGR-Lite exclusions include losses due to lack of labor, theft, vandalism and other circumstances," says 30-year crop insurance education veteran Charlie Koines, a New York State Department of Agriculture and Markets Crop Insurance Education Program consultant.
A Quick Crop Insurance Dictionary
AGR, AGR-Lite: Adjusted Gross Revenue whole-farm revenue coverage; policies guarantee a percentage of average gross farm revenue, based on past five consecutive years of Schedule F tax forms; AGR caps at $6.5 million liability, AGR-Lite at $1 million.
Buying up: Paying a higher premium for coverage above the minimum up to 85 percent of farm yield history for some crops; farmers generally pay 33 to 62 percent of cost.
CAT: 100 percent federally subsidized catastrophic coverage on 50 percent of a farm operation's actual production history yield with losses reimbursed at 55 percent of the established crop price; actual coverage value is approximately 27.5 percent; payment can run two years behind because values are set on annual price indexes; $300 per crop, per county application fee.
NAP: 100 percent federally subsidized noninsured crop disaster assistance program insurance available through the Farm Services Agency/USDA for crops not covered by a federal crop insurance policy; processing fee is the lesser of $250 per crop, $750 per county with $1,875 maximum for producers with crops in multiple counties.
Written agreement: A specially written option for producers of a particular crop for which rates and rules are not filed for their counties.
Nonanimal depreciating items such as machines and buildings, employee benefits, interest paid, rent, and the cost of post-production sorting and packing may be among the non-allowable AGR-Lite expenses. Koines says, "Expenses are recorded so that a drop in gross revenue is not due to changes in input costs. When a loss occurs, if actual expenses drop below 70 percent of the average or indexed allowable expenses, the AGR payment will be adjusted and reduced."
Some vegetable crop insurance may require crop rotation (and records to prove it) for disease prevention.
Late or lost crop plantings caused by equipment failure may not be covered.
Grape growers need to check requirements such as approved weed controls and removing pruning wood from the vineyard. For example, vinifera grapes lost to freezing may not be eligible for payment if the grower does not use recognized cultural practices for preventing trunk injury/death.
Read the fine print
CY Farms Managing Partner Craig Yunker in western New York says, "I believe crop insurance is an underutilized resource. CY Farms has carried varying levels for a number of years. 2011 is the first year we bought up insurance on almost all our crops, and we made claims. In one instance, for too much moisture in the spring; in another, for too little in July."
Yunker suggests making a matrix of a policy's key points and reference pages to help you understand the coverage, and, after you buy, to stay on track with important deadlines.
Mark your calendar
Keep a schedule of required application, reporting and claims filing dates. For example, vegetable growers have to meet several significant deadlines for obtaining coverage, reporting required information and making claims.
Keep good records
Good recordkeeping provides a historical basis and field-by-field or orchard block-by-block data for developing coverage that best fits your unique risk and yields.
Designate an insurance manager
If you don't have the expertise or interest in calculating insurance and managing deadlines, hire it done. One of CY Farms' 65 employees is responsible for managing the 5,600-acre business' applications, tracking, reporting and claims. In 2011, CY Farms split 15 different policies across three counties for 1,600 acres of vegetables in addition to sod and field crops.
Time your purchasing
In 2011, historically high grain prices made coverage against yield loss and lower selling prices unusually attractive. Yunker says, "We watch market pricing to guide our decision on when and how much insurance to buy as a revenue guarantee. The insurance does not make full remuneration, but it does help fill the gap and provides a cushion in the event of loss."
Start with CAT or NAP
CAT or NAP coverage must be in place to be eligible to receive any federal assistance in response to a disaster. "At minimum, CAT insurance is a must," Whittaker says. "I hope that seeing the devastation here will prompt farmers to check the [New York State Department of] Ag and Markets website, attend crop insurance meetings, ask questions, and then decide what's best for their operation so that they never have to face this type of loss again."
No policy for your crop?
Field crops were the first federally insured. Standardized policies for fruits, vegetables and other types of agriculture are slowly being added. Producers can get NAP for crops not currently covered in their area, can request a written agreement (a policy imported from another county/state), or ask for whole-farm coverage.
Buying for resale?
Producers who buy product from other farms for resale should account for planned buy-in on your annual Farm Report crop plan for whole-farm AGR coverage.
Adjust for value-added
"Crops insurance covers the value of grapes not wine, maple sap not syrup, and apples not cider and apples before cold storage (a form of value-added). Make sure your agent adjusts the previous five years' tax data to separate out the value-added for income and expenses at the start of your policy so you do not pay too much premium and get other surprises at claims time," Gantz says.
Ask about salvage value
Ask how salvaging any part of a damaged crop may reduce loss payment, and how value is determined. For example, apple salvage value of poor-quality fruit that is below the guaranteed grade may be able to be salvaged without affecting a claim, but the apples must be graded. Otherwise, guaranteed grade is assumed and reduces your indemnity.
Making a claim
Gantz recommends reporting damage by immediately telephoning your agent and following up in writing. He cautions: "An adjuster must see the damage before you destroy the evidence of damage. In some cases, if an adjuster cannot get to the farm, he/she may advise harvesting all but a few sample rows to see later." An adjuster may need to visit the farm several times to determine the quality and production levels for claims.
Speak up for change
If you want an insurance product that is not available to you, contact the USDA. Federal reviewers often develop new products or expand the area for existing ones when they see pockets of written agreements indicating a need for the RMA/USDA to develop rates and rules for policies for that crop in that area.
Producer associations and academic reports attract attention. Renata Brillinger, executive director of the California Climate & Agriculture Network, says, "Farmers need good crop insurance. The question is how crop insurance is structured in the light of climate change."
The November 2011 Institute for Agriculture and Trade Policy report: "A Risky Proposition: Crop Insurance in the Face of Climate Change" by Julia Olmstead and Jim Kleinschmit calls for insurers to address the lack of options for fruit and vegetable producers and to correct a 5 percent surcharge charged to organic producers who are reimbursed at conventional, not organic, crop prices.
The author is a freelance writer who keeps horses and sheep on a 100-acre farm in Mannsville, N.Y.