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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
Photos: USDA-ARS
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
Organic Crop Insurance
• 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
University Extension/Department of Economics
Organic Crop Insurance
• Need to show written certification of organic production or an organic plan, along with the location of organic (and non-organic) fields
University Extension/Department of Economics
Organic Crop Insurance
• 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)
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
Contract Pricing
• Alfalfa seed• Barley• Dry beans• Dry peas• Grapes• Buckwheat• Mustard
• Peanuts• Processing beans• Green peas• Pumpkins• Sorghum for silage• Soybeans
– Iowa
University Extension/Department of Economics
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)
University Extension/Department of Economics
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
University Extension/Department of Economics
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)
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
AGR-Lite Map
AGR Lite States
University Extension/Department of Economics
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
University Extension/Department of Economics
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%
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
AGR-Lite Example
• So if my revenue was $60,000, then I’ll get $18,000 – ($80,000 - $60,000)*90%
University Extension/Department of Economics
AGR-Lite Information
• AGR-Lite Policy Information http://www.rma.usda.gov/policies/agr-lite.html
University Extension/Department of Economics
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
University Extension/Department of Economics
Title
Source: RMA
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
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
University Extension/Department of Economics
PRF Information
• PRF Policy Information http://www.rma.usda.gov/policies/pasturerangeforage/
• PRF Decision Tool http://agforceusa.com/rma/ri/prf/maps
University Extension/Department of Economics
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/