Value of AGR-Lite for Value of AGR-Lite for WI Vegetable GrowersWI Vegetable Growers

UW Extension & WPVGA Grower ConferenceUW Extension & WPVGA Grower ConferenceFebruary 7, 2007February 7, 2007Paul D. MitchellPaul D. Mitchell

608.265.6514 pdmitchell@wisc.edu608.265.6514 pdmitchell@wisc.eduAgricultural and Applied EconomicsAgricultural and Applied Economics

University of Wisconsin-MadisonUniversity of Wisconsin-Madisonand UW-Extensionand UW-Extension

Goal TodayGoal Today

What is AGR-Lite?What is AGR-Lite? How does AGR-Lite work?How does AGR-Lite work? Who might find AGR-Lite Who might find AGR-Lite

valuable?valuable?

What is AGR-Lite?What is AGR-Lite?Adjusted Gross Revenue-LiteAdjusted Gross Revenue-Lite

A different type of crop insurance policy A different type of crop insurance policy newly available in Wisconsin in 2007newly available in Wisconsin in 2007

Whole farm revenue insuranceWhole farm revenue insurance Gross revenueGross revenue, not net revenue, not net revenue

Gross Revenue Guarantee Based on 5 Gross Revenue Guarantee Based on 5 year average of Schedule F or similar tax year average of Schedule F or similar tax records reported to IRSrecords reported to IRS Some adjustments (Some adjustments (AdjustedAdjusted Gross Revenue) Gross Revenue) LiteLite: $1,000,000 liability (indemnity) limit: $1,000,000 liability (indemnity) limit

Excluded Income Excluded Income The “Adjusted” in AGR-Lite The “Adjusted” in AGR-Lite

Value added activities: (e.g., cost & value Value added activities: (e.g., cost & value of post-production sorting, packaging, of post-production sorting, packaging, etc.)etc.)

Cooperative dividends not directly related Cooperative dividends not directly related to commodities producedto commodities produced

Income from custom hire machine workIncome from custom hire machine work MostMost other USDA payments (e.g., disaster) other USDA payments (e.g., disaster) Crop insurance indemnity paymentsCrop insurance indemnity payments

Schedule F Income IncludedSchedule F Income Included

Source: Gary Hachfeld, U of MN Regional Extension EducatorSource: Gary Hachfeld, U of MN Regional Extension Educator

Covered CropsCovered Crops Grains:Grains: corn, soybeans, wheat, small grains corn, soybeans, wheat, small grains Forage:Forage: alfalfa, corn silage, silage, … alfalfa, corn silage, silage, … Fruit:Fruit: apples, pears, peaches, plums, apples, pears, peaches, plums,

cherries, cranberries, numerous berries, …cherries, cranberries, numerous berries, … Livestock:Livestock: cattle, hogs, sheep, goats, cattle, hogs, sheep, goats,

poultry, dairy, fish, fur, …poultry, dairy, fish, fur, … Miscellaneous:Miscellaneous: mint, ginseng, popcorn, mint, ginseng, popcorn,

herbs, maple syrup, honey, X-mas trees herbs, maple syrup, honey, X-mas trees nursery crops, cut flowers, potted plants, …nursery crops, cut flowers, potted plants, …

Covered Vegetable CropsCovered Vegetable Crops

Potatoes, sweet corn, snap beans, peasPotatoes, sweet corn, snap beans, peas Carrots, onion, beets, garlic, celery, …Carrots, onion, beets, garlic, celery, … Cabbage, broccoli, cauliflower, …Cabbage, broccoli, cauliflower, … Melons, squash, pumpkins, …Melons, squash, pumpkins, … Tomatoes, peppers, eggplant, … Tomatoes, peppers, eggplant, … Greens, asparagus, horseradish, …Greens, asparagus, horseradish, … Even moreEven more

Crops Not CoveredCrops Not Covered

Covered crop/livestock must generate Covered crop/livestock must generate income to report on tax forms, so crops income to report on tax forms, so crops marketed through livestock are not coveredmarketed through livestock are not covered Forage if sold it is covered, but not if fed Forage if sold it is covered, but not if fed

to dairy cows (but the milk is covered)to dairy cows (but the milk is covered) Coverage based on Gross Income, not net Coverage based on Gross Income, not net

incomeincome No indemnity for higher costs, such as No indemnity for higher costs, such as

dry year when have to run irrigation more dry year when have to run irrigation more or buy forage for livestock/dairyor buy forage for livestock/dairy

Insured & Excluded Causes of Insured & Excluded Causes of LossLoss

Revenue losses from natural causes Revenue losses from natural causes (yield) or from market fluctuations (yield) or from market fluctuations (price)(price) Must still follow good farming practicesMust still follow good farming practices

Excluded causes of lossExcluded causes of loss Theft, vandalism, “mysterious Theft, vandalism, “mysterious

disappearance”disappearance” Lack of labor (e.g., to harvest ripe crop)Lack of labor (e.g., to harvest ripe crop) Inability to market commodities due to Inability to market commodities due to

quarantine, boycottquarantine, boycott Failure of buyer to pay for commodityFailure of buyer to pay for commodity

How does AGR-Lite work?How does AGR-Lite work? Calculate average gross revenue from 5 Calculate average gross revenue from 5

continuous years of tax formscontinuous years of tax forms A “crop” generates at least 11% of gross A “crop” generates at least 11% of gross

revenuerevenue Each crop has a risk category (1-5)Each crop has a risk category (1-5)

Higher risk crop, higher premiumHigher risk crop, higher premium Premium is average of premiums for each crop, Premium is average of premiums for each crop,

weighted by % gross revenue from each cropweighted by % gross revenue from each crop Can combine AGR-Lite with APH/CRC policiesCan combine AGR-Lite with APH/CRC policies

Gives a premium break for APH/CRCGives a premium break for APH/CRC Give specific coverage for those cropsGive specific coverage for those crops

Available OptionsAvailable Options Coverage Levels: 65%, 75%, and 80%Coverage Levels: 65%, 75%, and 80%

Determines your Revenue Guarantee Determines your Revenue Guarantee 80% coverage requires at least 80% coverage requires at least threethree crops crops

Payment Rates: 75% and 90%Payment Rates: 75% and 90% Indemnity paid per $ below revenue Indemnity paid per $ below revenue

guaranteeguarantee Max Liability (Indemnity) = $1,000,000Max Liability (Indemnity) = $1,000,000 Gross Revenue MaximumsGross Revenue Maximums

$2,051,282 for low coverage/payment rate$2,051,282 for low coverage/payment rate $1,388,889 for high coverage/payment rate$1,388,889 for high coverage/payment rate

Who might find AGR-Lite Who might find AGR-Lite valuable?valuable?

Growers of previously uninsurable cropsGrowers of previously uninsurable crops Non-Insured Crop Disaster Assistance Program (NAP) Non-Insured Crop Disaster Assistance Program (NAP)

coverage generally very lowcoverage generally very low Organic Producers:Organic Producers: RMA uses conventional crop RMA uses conventional crop

prices, now can insure at realistic prices prices, now can insure at realistic prices Direct Marketers:Direct Marketers: again, insure at realistic again, insure at realistic

pricesprices Use AGR-Lite as an Use AGR-Lite as an umbrella policyumbrella policy over all your over all your

crops in combination with APH/CRC policiescrops in combination with APH/CRC policies May give better premiums for conventional policiesMay give better premiums for conventional policies

Catastrophic policy for livestock/dairy:Catastrophic policy for livestock/dairy: provide provide coverage if have catastrophic health problemcoverage if have catastrophic health problem

AGR-Lite RecommendationsAGR-Lite Recommendations

Combine AGR-Lite with APH/CRC/Hail Combine AGR-Lite with APH/CRC/Hail coverage when can, so have more specific coverage when can, so have more specific coveragecoverage Assumes APH/CRC usefulAssumes APH/CRC useful May get better premiumsMay get better premiums

Livestock growers: AGR-Lite relatively Livestock growers: AGR-Lite relatively expensive for you, may not be useful: check it expensive for you, may not be useful: check it outout

Higher risk crops will be expensive, but may Higher risk crops will be expensive, but may be worth it, check it out and seebe worth it, check it out and see

Simple ExampleSimple Example Assume $500,000 average annual revenueAssume $500,000 average annual revenue Split: 60% potatoes, 20% each processing Split: 60% potatoes, 20% each processing

sweet corn and peassweet corn and peas

Revenue GuaranteesRevenue Guarantees

Coverage LevelCoverage Level

65%65% 75%75% 80%80%

$325,000$325,000 $375,000$375,000 $400,000$400,000

Simple ExampleSimple Example

Farmer Premium $ (% of Liability)Farmer Premium $ (% of Liability)

PaymPaymtt

RateRate

--------- Coverage Level ------------------ Coverage Level ---------

65%65% 75%75% 80%80%

90%90% $10,435 $10,435 (3.6%)(3.6%)

$16,400$16,400

(4.9%)(4.9%)$22,090$22,090

(6.1%)(6.1%)

75%75% $8,695 $8,695 (3.6%)(3.6%)

$13,670$13,670

(4.9%)(4.9%)$18,410$18,410

(6.1%)(6.1%)

Liability/Maximum IndemnityLiability/Maximum Indemnity

PaymPaymtt

RateRate

--------- Coverage Level ------------------ Coverage Level ---------

65%65% 75%75% 80%80%

90%90% $292,500$292,500 $337,500$337,500 $360,000$360,000

75%75% $243,750$243,750 $281,250$281,250 $300,000$300,000

Questions?Questions?

RMA two-page handoutRMA two-page handout Contact your crop insurance agentContact your crop insurance agent

Paul D. MitchellPaul D. Mitchell

608.265.6514 pdmitchell@wisc.edu608.265.6514 pdmitchell@wisc.edu

Agricultural and Applied EconomicsAgricultural and Applied Economics

University of Wisconsin-Madison and University of Wisconsin-Madison and UWEXUWEX