University Extension/Department of Economics Crop Insurance for Organic Producers: The Latest Update 10 th Annual Iowa Organic Conference Ames, Iowa Nov. 22, 2010 Chad Hart Assistant 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

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 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 Yields CropOrganic Yield to Insurance Reference Yield Wheat0.63 Rice0.90 Cotton1.11 Corn0.65 Soybeans0.67 Overall0.68 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

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 PRF Decision Tool

University Extension/Department of Economics Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: