Crop Insurance for Organic Producers: The Latest Update

University Extension/Department of Economics

Crop Insurance for Organic Producers: The Latest Update

10th Annual Iowa Organic ConferenceAmes, Iowa

Nov. 22, 2010

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]

Photos: USDA-ARS


Organics in Crop Insurance

• Prior to the Agricultural Risk Protection Act of 2000 (ARPA), organic farming practices were not considered as “good farming practices” for insurance purposes– So production losses under organic practices were

not covered by insurance

• ARPA changed that, went into effect in 2004


Organic Crop Insurance

• The federal crop insurance program now provides coverage for:– Certified organic production– Transitional production to reach organic

certification– Buffer zone acreage

• Coverage available if the government has premium information



• Crop losses due to weather, insects, disease, or weeds are covered

• Contamination of the crop (by application of a product or drift from another field) is not



• Need to show written certification of organic production or an organic plan, along with the location of organic (and non-organic) fields



• Premium rates for organic production included a 5% surcharge over conventional, with some exceptions– Group Risk Plan (GRP)– Group Risk Income Plan (GRIP)– Adjusted Gross Revenue (AGR)– Adjusted Gross Revenue Lite (AGR-Lite)– Livestock Risk Protection (LRP)– Livestock Gross Margin (LGM)– Pasture, Rangeland, and Forage (PRF)


Organic Crop Insurance Participation

Source: RMA

0

100,000

200,000

300,000

400,000

500,000

600,000

2004 2005 2006 2007 2008 2009

Insu

red A

cres

Yield Revenue Other


Organic Crop Pricing

• The federal crop insurance is updating how it sets organic crop prices

• In most cases, the insurable price is the same for organic and convention crops

• For some crops, a production contract can be used to set the price


Contract Pricing

• Alfalfa seed• Barley• Dry beans• Dry peas• Grapes• Buckwheat• Mustard

• Peanuts• Processing beans• Green peas• Pumpkins• Sorghum for silage• Soybeans

– Iowa


New Pricing Rules for 2011

• Applies to corn, soybeans, cotton, and processing tomatoes

• Proposed settings:– Corn: 1.52 * Conventional price

– Soybeans: 1.68 * Conventional price

– Cotton: Average organic price for the last 3 years (only in Texas)


Insurance Performance

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2004 2005 2006 2007 2008 2009

$ P

aym

ent/

$ P

rem

ium

Organic Conventional

Organic: 2.35 million acres, $78 million paid out

Conventional: 225 million acres, $4.3 billion paid out

Source: RMA


Reviewer Recommendations

• A study was conducted on organic crop insurance

• The reviewer “refutes the existence of significant, consistent, and systemic variations in loss history between organic and non-organic commodities…”– Watts and Associates (Feb. 2010)


Reviewer Recommendations• Recommendations

– No premium surcharge for some crops• Mainly citrus and nursery

– For dollar plans of insurance, no premium adjustment until a target level of participation

– For policies using yields, set T-yields at 65% of conventional T-yields

– Establish organic as a separate type/practice– Allow organic production to be a separate

insurance unit


YieldsCrop Organic Yield to Insurance Reference Yield

Wheat 0.63

Rice 0.90

Cotton 1.11

Corn 0.65

Soybeans 0.67

Overall 0.68

Significant variation across crops and across the nation

Source: Watts and Associates, RMA


GRP and GRIP

• Are area-based policies– Use county-level yields to determine

insurance

– Could be a good fit if your yields move like the county’s

– Price still based on conventional crop• GRP uses USDA pricing• GRIP uses futures


AGR and AGR-Lite

• Are whole-farm revenue policies

• Covers most farm-raised crops, animals, and animal products

• Insurance based on 5-year average farm revenue as reported on tax forms– Schedule F


AGR-Lite Map

AGR Lite States


AGR and AGR-Lite

• Differences between AGR and AGR-Lite are the amounts of liability allowed and animal production covered

• AGR-Lite is available in more states than AGR

• Producer picks coverage level and payment rate


AGR-Lite

• At sign-up, producers report– 5 years of incomes and expenses (from tax

forms)– Report of current year’s production plan– Beginning inventories of crops– Listing of on-farm changes that would lower

income from previous years– Coverage level: 65, 75, or 80%– Payment rate: 75 or 90%


AGR-Lite

• The coverage level determines when the policy will pay

• The payment rate determines how much you’ll receive for each dollar of loss


AGR-Lite Example

• Let’s say my farm has a 5-year average revenue of $100,000 and I pick the 80% coverage level with the 90% payment rate

• If my farm’s revenue falls below $80,000 (80% of $100,000), then the policy pays

• For each dollar below $80,000, I receive 90 cents


AGR-Lite Example

• So if my revenue was $60,000, then I’ll get $18,000 – ($80,000 - $60,000)*90%


AGR-Lite Information

• AGR-Lite Policy Information http://www.rma.usda.gov/policies/agr-lite.html


Pasture, Rangeland, and Forage

• In the U.S.:– Over 580 million acres of pasture and

rangeland– Over 60 million acres of hay

• Takes a unique policy to cover the risk for livestock feeding operations

• Pasture, Rangeland, and Forage (PRF) contains two unique approaches to the issue


Title

Source: RMA


Rainfall Index

• Uses NOAA grid data– Historical data going back to 1948

• Provides protection again low precipitation events (as measured by an index across a grid of land)

• Rainfall index set at 100 = “normal precipitation”

• Covers hay land or grazing land


Vegetation Index

• Uses U.S. Geological Survey satellite data– Historical data going back to 1989

• Provides protection again decreased vegetation events (as measured by an index across a grid of land)

• Vegetation index (Normalized Difference Vegetation Index [NDVI]) set at 100 = “normal vegetation”

• Covers hay land or grazing land


Both RI and VI

• Coverage levels– 65 (CAT), 70, 75, 80, 85, and 90 %

• Dollar amount of protection per acre– Base level set at the county (County base

value)– Insured picks protection factor: 60 to 150%– Dollar amount of protection per acre =

County base value * Coverage level * Protection factor


PRF Information

• PRF Policy Information http://www.rma.usda.gov/policies/pasturerangeforage/

• PRF Decision Tool http://agforceusa.com/rma/ri/prf/maps


Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/~chart/

Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/

Documents

Crop Insurance for Organic Producers: The Latest Update