WASHINGTON, May 21, 2014 – It may not be a “cure-all,” but USDA’s newest effort to revamp “whole farm” insurance policies represents a “great step forward” that could really help smaller and more diversified operations with their risk management needs. At least that’s the perspective from Brandon Willis, USDA’s Administrator of the Risk Management Agency (RMA). Even more remarkable, the changes were proposed by potential customers and approved in less than a year – the equivalent of “light speed” for a federal agency.
At the urging of Agriculture Secretary Tom Vilsack last year, and armed with reforms included in the new farm bill, RMA embarked on a mission to address some of the barriers that farmers confronted with whole farm plans. These plans, which aim to protect against low farm income based on historical Internal Revenue Service filings of Form 1040 (Schedule F), haven’t gotten much respect or attention since they were first introduced in 1999.
As we noted the March 5, 2014 issue, only about 800 whole farm insurance policies, known as Adjusted Gross Revenue (AGR) and Adjusted Gross Revenue-Lite (AGRLT) were sold in 2013 with premiums of about $17.4 million. The majority sold were in Washington state (483 policies sold) and Oregon (95 policies sold). That’s a relative drop in the bucket, compared to almost 1.4 million revenue-based crop insurance products with premiums of about $9.4 billion.
During the May 7-8 board meeting, the Federal Crop Insurance Corporation (FCIC) approved changes that will create the new “Whole Farm Revenue Protection” insurance product in areas where AGR and AGRLT had been available. The new policy makes five major changes:
· Market Readiness: Under the current AGR policies, post-production expenses have to be taken out of insurable revenue, but new farm bill language allows RMA to include some post-production expenses, such as washing, trimming and packaging. However, costs associated with changing the form of a product such as slicing apples or adding value by turning grapes into wine will still have to be adjusted out of any revenue amount insured.
· Premium rate discount. Discounts are offered from 2 up to ‘7 or more’ commodities based on the amount of diversity, based on the logic that more diverse farms are better protected from overall risk. The most diverse farm for Whole-Farm Revenue Protection is one that obtains equal amounts of revenue from each commodity grown and has 7 or more commodities. Commodities grown in small amounts may be grouped together to qualify as individual commodities.
· Expanded range of coverage levels: Producers can choose a policy at as low as 50- percent coverage level and pay lower premium rates (CAT is not available); or they can choose coverage levels up to 85 percent at higher premium rates to help with more risk management. Diversification is required to qualify for the higher coverage levels.
· Expansion: Through its expanding operations procedure and its indexing procedure, this new policy takes into account expansion of the operation caused by changes in the operation or prices over time.
· Replant coverage. This policy provides replant coverage for annual crops when there is the ability to replant a crop due to a covered loss, as long as it is considered a good farming practice.
