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Crop Insurance for Organic Producers: The Latest Update

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 chart@iastate.edu 515-294-9911. Photos: USDA-ARS.

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Crop Insurance for Organic Producers: The Latest Update

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  1. Crop Insurance for Organic Producers: The Latest Update 10th Annual Iowa Organic Conference Ames, Iowa Nov. 22, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911 Photos: USDA-ARS

  2. 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 Organics in Crop Insurance

  3. 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 Organic Crop Insurance

  4. 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 Organic Crop Insurance

  5. Need to show written certification of organic production or an organic plan, along with the location of organic (and non-organic) fields Organic Crop Insurance

  6. 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) Organic Crop Insurance

  7. Organic Crop Insurance Participation Source: RMA

  8. 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 Organic Crop Pricing

  9. Alfalfa seed Barley Dry beans Dry peas Grapes Buckwheat Mustard Contract Pricing • Peanuts • Processing beans • Green peas • Pumpkins • Sorghum for silage • Soybeans • Iowa

  10. 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) New Pricing Rules for 2011

  11. Insurance Performance Organic: 2.35 million acres, $78 million paid out Conventional: 225 million acres, $4.3 billion paid out Source: RMA

  12. 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) Reviewer Recommendations

  13. 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 Reviewer Recommendations

  14. Yields Significant variation across crops and across the nation Source: Watts and Associates, RMA

  15. 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 GRP and GRIP

  16. 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 AGR and AGR-Lite

  17. AGR-Lite Map AGR Lite States

  18. 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 AGR and AGR-Lite

  19. 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% AGR-Lite

  20. The coverage level determines when the policy will pay The payment rate determines how much you’ll receive for each dollar of loss AGR-Lite

  21. 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 AGR-Lite Example

  22. So if my revenue was $60,000, then I’ll get $18,000 ($80,000 - $60,000)*90% AGR-Lite Example

  23. AGR-Lite Policy Information http://www.rma.usda.gov/policies/agr-lite.html AGR-Lite Information

  24. 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 Pasture, Rangeland, and Forage

  25. Title Source: RMA

  26. 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 Rainfall Index

  27. 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 Vegetation Index

  28. 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 Both RI and VI

  29. PRF Policy Information http://www.rma.usda.gov/policies/pasturerangeforage/ PRF Decision Tool http://agforceusa.com/rma/ri/prf/maps PRF Information

  30. 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/

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