Can Crop insurance Work to Lower Production and Price Risk of Diversified Farms?

Lessons Learned from the AGR-Lite Wizard ProjectJeff Schahczenski, Agricultural Economist

National Center for Appropriate Technology

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Why Insure Crops and Livestock?October 2011

September 2012

January 2013

This Crop Year Already

Important National Benefit for Agriculture• In 2010 it was predicted that the

federal subsidization of crop Insurance premiums could be close to $9 billion dollars per year through 2022.

• Average premium benefit is about 62% of the cost.

• In 2012 premium subsidy was almost $7 billion dollars- Payouts highest ever over $16 billion dollars and counting

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Is Whole Farm Revenue Insurance an answer?

Sustainability-Resilient Diversity

“In every deliberation, we must consider the impact on the seventh generation... even if it requires having skin as thick as the bark of a pine.” —Great Law of the Iroquois” – Resiliency– Diversity– Adaptable– Interdependence

Commercial Farms

Farm Profitability

Is Good Crop Insurance for Diverse Farms Possible?

• “Good”- meaning reasonably priced and with effective coverage

• “Good”- meaning as good as current commodity or specialty crop-based policies

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Why Insure Crops- Price Volitility

What is Insured Nationally- 2012Major Crop Rankings by Crop Liability

Total (Billions of dollars)

% Revenue % of Total

51.6 83% 45%

Soybeans 25.8 85% 23%

Wheat 10.3 85% 9%

Cotton 6.8 72% 6%

Nursery (FG&C) 2.3 N/A 2%

Other 17.4 N/A 15%

Field Corn Crop Insurance

Fresh Market Tomatoes Crop Insurance

Why Whole Farm Revenue InsuranceAdjusted Gross Revenue Lite

• Crops with no Multi-Peril (Yield) or Revenue Insurance• Commodities with premium prices• Organic and specialty crops• Varietal differences in yield and price• Provides for quality losses• Livestock

Three Cases from Maryland

• AGR-lite for small diverse organic vegetable and livestock farm

• AGR-lite for wholesale larger organic vegetable farm compared to individual policies

• AGR-lite for organic grain farm vs. individual policies

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Case 1- Maryland Diverse Organic Farm• 72- 6’ x 350’ beds ~ 3.6 acres• Basil, Kale, Beets, Potatoes,

Winter Squash, Onions, Carrots, Tomatoes

• 15 Bee hives• 60 Laying hens (eggs)• $62,400 in projected gross

revenue for 2013Loss Scenario: 50% loss of honey yield, 50% loss

due to egg price drop, 80% loss onion yield, 50% loss in tomato yield and 50% loss carrot price and yield

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Case 2- Maryland Wholesale Organic Farm• 130 acres organic

processing sweet corn• 30 acres organic fresh

market tomatoes• 60 acres organic green peas• 8 acres of organic apples

Loss Scenario: 50% yield or price loss

on all crops

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Case 3- Maryland Organic Grain Farm

• 85 acres of organic wheat

• 110 acres of organic field corn

• 60 acres of organic soybeans

Loss Scenario: 50% loss yield or price

on all crops

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AGR-Lite Wizard

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• CD available for PC (no Mac version) - Sept. 15th for 2013

• www.agrlitewizard.com

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Case 1- Small Organic Vegetable and Livestock Results

Case 1- Small Organic Vegetable and Livestock Results

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AGR-LiteAnimals Intended Revenue Only

Bees / Hives Intended Revenue OnlyCrops Whole Farm Revenue 48-72%

- level of coverage elected

Losses Covered Production Loss Price Decline Quality Loss

Cost Premium $ 956

Losses Paid Minus Premium Net Payment

$ 1,928 $ 956 $ 972

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Case 2- Organic Wholesale Results

Case 2- Organic Wholesale Results

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Individual AGR-Lite

Organic Processing Sweet Corn 50% Yield Loss 50% Revenue Loss

Organic Fresh Market Tomatoes 50% Yield Loss 50% Revenue Loss

Organic Green Peas 50% Yield Loss 50% Revenue Loss

Organic Apples 50% Yield Loss 50% Revenue Loss

Criteria 100% price election and 70% of approved APH Yield

90% coverage x 80% payment rate = 72% of approved AGR

Cost Total premium for all APH policies $ 24,738

Trigger $ 212,470 Premium $   7,590

Losses Paid Minus Premium Net Payment

$ 42,542$ 24,738 $ 17,804

$ 57,082 $   7,590 $ 49,492

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Case 3- Organic Grain Result

Case 3- Organic Grain Result

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Individual AGR-LiteOrganic Field Corn 50% Revenue Loss 50% Revenue Loss

Organic Wheat 50% Revenue Loss 50% Revenue Loss

Organic Soybeans 50% Revenue Loss 50% Revenue Loss

Criteria 100% price election and 70% of approved APH Yield projected and havrvest price

90% coverage x 80% payment rate = 72% of approved AGR

Cost Total premium for all APH policies $ 8,890

Premium $   5,543

Losses Paid Minus Premium Net Payment

$ 30,304$ 8,890 $ 21,414

$ 40,698 $   5,543$ 35,055

Critical Improvements

• Coverage too low- or deductable to high

• Premium costs do not decline with diversity

• Application process and information intensity needs to be lowered---AGR-lite Wizard helps

• Whole farm revenue should be available nationwide

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2012 Senate Farm Bill

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Summary

• Whole farm revenue can work well for some diverse farms as is. With improvements it would be used more extensively

• Crop based insurance pick’s winner’s and promotes specialization rather than diversity

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