Thaddeus McCamant Central Lakes College Staples, MN Government Sponsored Insurance Programs for Specialty Crop Producers 2: Whole Farm Revenue Protection Thaddeus McCamant Central Lakes College Staples, MN

What does Whole Farm Revenue Protection mean? Insuring the revenue instead of the crop Losses can be from: Natural disasters Drop in price Specifically designed to benefit specialty crop producers Especially farms with two or more crops

Comparison of WFRP and NAP NAP WFRP Insures Yield Revenue Measurements Yield/acre Dollars/farm Coverage 50-65% 50-85% Records Yields Yields and expenses Application deadline By crop Determined by tax deadline Administered by FSA Independent insurance agent

WFRP and AGR- Lite WFRP was created out of the Agr-Lite insurance following the 2014 Farm bill. Improvements over AGR Lite: Higher premium subsidies A premium discount for increased diversification stair stepped up to 7 crops; Coverage for livestock and nursery and greenhouse plants (capped at 35 percent of revenue up to $1 million each); Inclusion of some incidental processing expenses necessary to make the commodity ready for market, such as washing, trimming, and packaging; Increased coverage for expanding operations; Replant coverage for a crop losses early enough for replanting; and The continued option to insure individual crops under separate crop policies (cannot be CAT level coverage).

Coverage levels: A claim can be made if yearly farm income drops below specified amount Growers can choose from 50-85% protection in increments of 5 50-75% - two crops 80-85%- must have 3 crops If gross farm income averages $100,000, and you choose 75% coverage, you can get a $5000 settlement if your income is $70,000, and the drop in income is due to a qualifying event

Why encourage diversification? Optimal conditions for different crops vary A hot summer is good for some crops and bad for others 2012 Strawberries – worst year ever Apples - disaster Pumpkins – high yields Most vegetables – best ever Diversification in Specialty Crops Program

How do you determine the number of crops? In order to qualify as a second crop, the sales of that crop must account for a “significant portion” of the total. 95% of sales are apples, and 5% are pears – no. 50% apples, 50% is ideal Qualifying revenue threshold equation: (1÷#crops) x .333 x expected gross farm income $100,000 in Gross Farm Income 2 crops = 0.5 x .333 x $100,000 = $16,665 in sales 3 crops = $11,000 in sales

Premiums and number of crops Actual premium is determined by insurance agent using actuarial documents Premium subsidy varies with number of crops and coverage level 1 crop, 75% coverage 59% subsidy 2 crops, 75% coverage 80% subsidy Subsidies drop for 80 and 85% coverage Coverage Level 50% 55% 60% 65% 70% 75% 80% 85% Basic Subsidy-Qualifying Commodity Count: 1 67% 64% 59% N/A Whole-Farm Subsidy-Qualifying Commodity Count: 2 Whole-Farm Subsidy-Qualifying Commodity Count: 3 or more 71% 56%

Actual Premiums for farms in the $50,000 - $100,000 range Grower 1: 5 crops, 70% coverage = $1600 (1% of Gross Farm Income) Grower 2: 3 crops. $1300/year Grower 3: 3 crops. $2900/year 80% coverage. Insures $59,000 in revenue Coverage is 5% of insured revenue Without subsidy, insurance would be $14,779

Determining Farm Income for Coverage Ideally: 5 years of Schedule F tax returns Coverage is average of 5 years Beginning farmers: 3 years of schedule F, plus farming the past year 2014-16, plus 2017 If beginning farmer is taking over an existing business, the previous owner’s records can be used

Approved income for Growing Farms Approved income can be up to 35% higher if you can demonstrate that the farm is expanding production Examples: Increased acreage planted Orchard or blueberry acreage coming into production

Revenue Allowed Not allowed The sales of products or animals that you raised and sold The sales of produce, grain or animals that you bought and sold for profit Post production processing Animals raised by contract Commodities for which you do not have an insurable interest (timber) Revenue from governmental programs like NAP

Qualified losses (1) Adverse weather conditions; (2) Fire; (3) Insects, but not damage due to insufficient or improper application of pest control measures; (4) Plant disease, but not damage due to insufficient or improper application of disease control measures; (5) Earthquake; (6) Volcanic eruption; (7) Failure of the irrigation water supply, if caused by an insured peril that occurs during the insurance period; (8) Wildlife, unless control measures have not been taken; or (9) a decline in the market price.

Decline in local market price Specifically targets “unavoidable natural causes” rather than man- made causes for the decline in market price

Losses that don’t qualify (1) Negligence, mismanagement, or wrongdoing by you, any member of your family or household, your tenants, employees, or contractors; (2) An act by any person that affects the revenue on the farm operation including but not limited to chemical drift, or fire caused by anything other than a naturally occurring event; (3) Failure to follow recognized good farming practices for each insured commodity; (4) Flooding if you plant below the average height of a reservoir 5) Damage to machinery or equipment; (6) Failure to carry out good irrigation practices for an insured commodity, if applicable; (7) Failure or breakdown of irrigation equipment or facilities;

Unqualified losses, continued 8) Theft, mysterious disappearance or vandalism of an insured commodity; (9) Inability to market the commodities due to quarantine, boycott, or refusal of any person to accept your commodities for any reason other than damage due to an insured cause of loss; (10) Lack of labor to properly care for, harvest or perform any necessary production activities for any insured commodity; (11) Failure to receive payment for produced commodities; (12) Failure to follow the requirements contained in any processor contract; (13) Abandonment; (14) Failure to obtain a price for any commodity that is reflective of the local market value; or (15) Deterioration of commodities in storage

Expenses Specialty crops have high expenses whether the crop is harvested or not WFRP has provisions to encourage the farmer to take care of plants in years with low revenues If expenses are 70% or lower than average on claim year, claim will be lowered by 1% 5 years applicable expenses

Allowable expenses Most expenses necessary to raise, harvest and sell a crop Labor, depreciation, fuel etc. Lines 10-32 on Schedule F (a few exceptions)

Post-Production Expenses and Revenue Allowable expenses are those that make the product “market ready.” Washing Sorting Packing When product is altered, expenses are not allowed Revenue Revenue from an altered product or value added product is not allowed as farm income Putting product in gift baskets Making wine Slicing apples

Doubling up on insurance Allowable for most types of crop insurance except CAT If you have NAP and WFRP, then you can’t collect full amounts from both If you collect NAP insurance on apples, then the collection from WFRP will have the amount from NAP subtracted

Assess your risk How often are you wiped out? What is your lowest revenue ever recorded? How often will you collect? Probability of getting hurt Self insure

Reporting Losses – Multiple steps Notice of loss within 72 hours after discovery is made Submit claim after filing federal income tax

Steps to take to apply for WFRP Contact Insurance Company/Agent Five (5) years of historic Schedule F farm tax records, except in the following situations: If you don’t file Schedule F you will need the farm tax forms you file plus supporting information so a Substitute Schedule F can be completed. Your farm plan for the year to show what commodities you plan to produce and how much of each will be produced. Historic records may be needed to assist with determining expected prices If you raise organic commodities you will need your organic certificate unless your farm produces $5,000 or less. Farm marketing records are acceptable records for direct marketed commodities. Summaries of coverage for any individual insurance policies you have purchased. Inventory information for commodities, and accounts receivable or accounts payable if you have them.

Grower views Worth it if collect every ten years Wished they had chosen a higher level Some growers prefer to self insure Store up money on good years to survive the bad years

Questions?