Not Just for Corn and Soybean Farmers
By Megan Vaith, Northbourne Organic Crop Insurance LLC
Published June 26, 2023
Part 2 of 3
Crop insurance is the most widely talked about risk management tool in the agricultural industry. However, it often focuses on corn and soybean farmers. Where does that leave the fruit, vegetable, and specialty growers? Are there any true risk management options for them or is diversification enough to withstand any potential weather hardships?
While diversification is a great strategy for mitigating risk, it sometimes falls short. What happens if a mid-season hailstorm comes through and destroys everything? Whole Farm Revenue Protection (WFRP) is a product within the crop insurance toolbox designed for those producers who are not served by traditional programs, such as specialty and diversified growers. This policy provides protection on crops that otherwise aren’t readily available in the area.
WFRP insures an entire operation from a loss in revenue, which is completely different from the more traditional crops where a producer must often have to have a drop in yield, not just revenue, to trigger a claim. A baseline guarantee is established by looking at previous revenue history based on the operation’s Schedule F tax forms. The insurance company will compare the average allowable revenue for the previous five years to the expected revenue for the coming year. The lower of these two numbers will be the approved revenue.
No crop insurance policy insures the full approved revenue. WFRP coverage levels are available from 50%-75% in 5% intervals unless the operation has three or more commodities. In that case, the operation is eligible to insure up to 85%. So, to calculate the guaranteed revenue for a WFRP policy, take the approved revenue, which is the lower of the historical average or the expected revenue for the coming year, and multiply it by the selected coverage level. Then at the end of the year at tax filing time, if the revenue for the year falls below that guaranteed amount, it triggers a claim. Sounds simple, right? Unfortunately, not so much.
Most agents and farmers stay away from WFRP because it is much more complex than it seems. One big hang up is the delay in indemnity payments. Since everything is based on Schedule F records, claims cannot be triggered and paid until that crop year’s taxes are filed, meaning it could be 9 months or more after the storm event before payment is made. However, that shouldn’t be a reason to shy away from the policy. WFRP is still a pilot program and the Risk Management Agency is continuing to listen to feedback to update the policy to make sure it reaches its full potential and is a good fit for farmers.
There are three main ways to insure crops under this policy:
Line-by-Line Commodities – Under this structure, each commodity is reported separately. To do this, the revenue and yield for each commodity must be tracked and reported.
Combined Direct Marketing – This is a great option for farmers that sell directly to the consumer, such as through a farmer’s market or CSA. Combined Direct Marketing allows farmers to combine commodities together rather than keeping track of all the yields, income, or expected values individually per crop. To qualify for this, an operation must sell at least two commodities directly to the end consumer. Under WFRP, producers get an extra subsidy (premium assistance) with each additional crop they report. However, combined direct marketing will always only equal two commodities. Depending on the details, an operation does have the ability to insure some commodities under combined direct marketing and some as line-by-line items.
Micro Farm – This is the new big thing under whole farm insurance, and it is a large benefit to smaller farmers. This policy allows farms to combine all their agricultural commodities together, whether they are direct marketed or not. The commodity count under this structure always equals three commodities which automatically triggers eligibility for the 80-85% coverage levels. This policy has become extremely popular because farms do not have to report individual expected yields and values for each crop. However, in order to insure as a Micro Farm, an operation needs to provide consolidated sales records for the last three years, so some history is still needed to be eligible.
Under both line-by-line commodities and combined direct marketing, farms are not able to insure any revenue from post-production operations or value-added commodities. For example, if an apple orchard makes applesauce, jam, or apple butter, the revenue from those sales will be uninsurable. However, the Micro Farm policy eliminates that and allows the farm to insure those post-production efforts.
Seems like the way to go and everyone should insure this way, right? Unfortunately, that’s not the case. For the 2023 crop year, Micro Farm is only available to farms with less than $350,000 in approved revenue. This is a huge step up from the $100,000 limit in 2022 when the policy was first established. Remember how this is a pilot program and subject to change? I was fortunate enough to participate in a few feedback meetings where they implemented the change we were asking for. Big win for farmers!
I often hear two major complaints about WFRP: too much paperwork and too expensive. While it is much more paperwork than a traditional crop insurance policy, these records are necessary to establish a guaranteed revenue. There is no county yield or baseline to use for a lot of the crops insured under WFRP, making this information essential.
Now for the expense part. Below is a scenario where a farmer grows apples, broccoli, and cut flowers. The average revenue over the last five years was $150,000. The expected revenue for 2023 is as follows: apples = $80,000, broccoli = $40,000, cut flowers = $30,000, totaling $150,000. At the 75% coverage level, this farmer will be guaranteed a revenue of $112,500 and have a total premium of $4,950. Of course, the higher the coverage, the less subsidy received, so 80% coverage offers a guarantee of $120,000 for a premium of $8,213. To me, this doesn’t sound too terribly expensive to make sure you have coverage in place in case a bad storm or early frost comes through.
All-in-all, whole farm revenue protection can get complicated. If you feel like this would benefit your operation, I highly suggest asking around and finding an agent that is familiar with the policy. Very few agents either have or are willing to write this type of insurance. Make sure you set yourself and your operation up for success in the beginning rather than signing up for the policy and being surprised at claim time due to a misunderstanding. The sign up deadline for most operations is March 15th. With all the extra paperwork involved in WFRP, be sure to call early to get the process started.