Insurance options for vegetable growers

There are insurance options for vegetable growers, which can potentially kick in with delayed planting, prevented planting and reduced revenues.

August 21, 2019 - Author: ,

Flooded strawberries
Strawberry harvests can be impacted by heavy rains as fruit develops. Photo by Paul Bublitz.

Farmers face many challenges. This year, delayed planting from rain has been a factor to contend with. Some growers, who would normally put in many separate sweet corn plantings for continual harvest, have reduced the number of plantings by nearly half in order to focus on transplanted vegetables and pumpkins in the limited time they had between rain events. Other growers lost their first plantings of brassicas and root crops from heavy rain drowning seedlings and bolting from favorable flower forming conditions followed by heat. In 2017 and 2018, crop loss due to excessive rain near harvest prevented pumpkins from being harvested and rotted the last few pickings of melons, watermelons, peppers and tomatoes. Thankfully, there are risk management programs that can take the edge off major losses from lower yields, crop losses or prevented planting from weather events such as these.

For many farms, crop insurance is an option for the crops they raise. Whole-farm revenue protection (WFRP) and average production history (APH) insurance are two distinct insurance options administered through the Risk Management Agency (RMA) of the USDA and can be purchased through private crop insurance agents. Unfortunately, there are many for which crop insurance is not available. The Noninsured Crop Disaster Assistance Program (NAP) that is administered through the Farm Services Agency (FSA) of the USDA is available for crops not covered by crop insurance. A producer must sign-up through their local FSA office for NAP.

 

Growers can pay in to WFRP and NAP plans but can only collect on one plan in the same year. Growers can layer WFRP and APH plans. Here is a brief overview of how to participate in these insurance and disaster relief options, and what triggers them.

Whole Farm Revenue Protection (WFRP) insurance through RMA

RMA offers WFRP insurance nationwide through private insurance agents, who can be found with the Agent Locator tool.

WFRP is based off your average gross income over five years, as reported in Schedule F tax forms. This number is then compared to what you expect your gross income to be for the next crop year from allowed on-farm revenue streams. Examples of non-allowable revenue streams include custom hire agricultural work, contract growing, government program payments (like Conservation Reserve Program participation), and post-production processing.

The Average Revenue History (ARH) is the lower of these two numbers, and the insured revenue for that year is ARH times the coverage level, between 50% and 85%, and a subsidy based on the number of crops that are grown on the farm.

At the end of the season, after you have filed your farm income taxes, a loss adjuster will review it for allowable revenue and expenses, inventory adjustments, unharvested or unsold production, and production lost from uncovered causes to determine a revenue. A loss indemnity payment is made when the total revenue for the year falls below the insured revenue and fills in that loss.

A farm can have no more than $8.5 million in insured revenue; have no more than $1 million expected revenue from animals and animal products; have no more than $1 million in expected revenue from greenhouse and nursery; and have no more than 50% of total revenue from commodities purchased for resale.

Use the following formula to calculate expected revenue with WFRP:

ARH x ___% coverage level x ___% subsidy = insured revenue.

Your eligibility and premiums can be calculated in more detail with the RMA Cost Estimator tool. The Cost Estimator only provides a general premium estimate. Refer to your crop insurance agent and policy for specific information regarding insurance coverage, calculations, conditions, application deadlines, and exclusions.

Average Production History (APH) insurance through RMA

RMA offers APH insurance on cabbage, green peas, machine-harvested pickling cucumbers, mint, onions, potatoes, processing beans and processing tomatoes in certain counties in Michigan through private insurance agents, who can be found with the Agent Locator tool. Growers can make a Written Agreement with their insurance agent to cover these crops in other counties.

Each of these programs generally works similarly for each of the crops, with minor differences in options and coverage levels. Each crop’s APH program has details on their calculation at the Michigan RMA website. Basically, the average crop yield is multiplied by your coverage level%age to get a guaranteed yield, and a loss occurs when your actual yield falls below your guaranteed yield amount. Many of these programs also entail working with your contracted buyer as well as your insurance agent.

Use the following formula to calculate expected revenue with APH:

APH x ___% coverage - ____actual yield x $____elected price x ___% share = expected revenue per acre.

Your eligibility and premiums can be calculated in more detail with the RMA Cost Estimator tool. The Cost Estimator only provides a general premium estimate. Refer to your crop insurance agent and policy for specific information regarding insurance coverage, calculations, conditions, application deadlines, and exclusions.

Noninsured Crop Disaster Assistance Program (NAP) through the FSA

FSA offers NAP nationwide to producers of non-insurable crops to protect against catastrophic natural disasters that result in lower yields, crop losses or prevented planting. NAP may also be available if crop insurance does exist for a crop, but coverage is not available for your crop type or intended use such as fresh market versus processed market. The Farm Service Agency (FSA) handles NAP at the county level, and offices can be found with the Service Center Locator tool.

For all coverage levels the 2018 Farm Bill set the NAP service fee as the lesser of $325 per crop or $825 per producer per administrative county, not to exceed a total of $1,875 for a producer with farming interests in multiple counties. The schedule of fees and premiums follow a standard formula. For catastrophic level 50/55 coverage, the maximum premium for a producer is $6,562.50 (the maximum payment limitation of $125,000 times a 5.25% premium fee). Effective for 2019 through the 2018 Farm Bill, the payment limitation has been increased to $300,000 per payment limitation. This maximum payment limitation times the 5.25% premium factor results in a higher maximum premium of $15,750 for each eligible payment limitation. Keep in mind that the higher premium is a result of higher level of coverage and therefore, a higher maximum payment for an eligible claim. However, if you are a beginning farmer, a socially disadvantaged farmer or limited resource farmer, a producer may qualify to have the premium reduced by up to 50% and the administrative fee waived.

NAP covers prevented planting when unplanted acres are greater than 35% of intended acreage or covers loss of yield when loss is greater than 50% of a crop’s Actual Production History (APH) yield per acre at 55% of the national average market price. The 2014 Farm Bill authorized coverage levels ranging from 50 to 65% of production, in 5% increments at 100% of the average market price. This is called the “NAP Buy-up”.

A farm’s average adjusted gross income cannot exceed $900,000 to be eligible for NAP payments. Also, NAP payments received are limited to $125,000 per crop year, per farm for catastrophic coverage and $300,000 for buy-up coverage levels.

Use the following formula to calculate expected revenue with Basic NAP:

APH x 50% coverage x $____ FSA price x 55% x ___% of affected crop = expected revenue per acre.

Use the following formula to calculate expected revenue with NAP Buy-up:

APH x 50-65% coverage x $____ FSA price x ___% of affected crop = expected revenue per acre.

Your eligibility and premiums can be calculated in more detail with the NAP Crop Eligibility, Premium, and Payment Estimator tool. This tool will also tell you if you are eligible for RMA APH insurance. Refer to your FSA Service Center and policy for specific information regarding NAP coverage, calculations, conditions, application deadlines, and exclusions.

MSU Extension reminds you to always contact your trusted legal and tax advisors.

 

Tags: agriculture, crop insurance, crop insurance articles, delayed planting, farm business management, msu extension, organic agriculture


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