An Introduction to Risk Management for Diversified Producers in Central Appalachia

1. An Introduction to Risk Management for Diversified Producers in Central Appalachia Virginia Tech Beginning Farmer and Rancher Coalition Webinar Series, June 5, 2013 Jennifer Lamb Fellow Appalachian Sustainable Development MS Agricultural and Applied Economics Virginia Tech

2. Who we are • www.asdevelop.org • Non-profit (501c3) based in Abingdon, VA • Founded in 1996 • Four Focus Areas: • Agriculture • Operate Appalachian Harvest Food Hub based in Duffield, VA • Coordinate the Appalachian Farmers Market Association • Produce annual Local Food Guide • Rooted in Appalachia Consumer education/restaurant delivery service • General agricultural education • Food Access • Sustainable Forestry • Youth education Purchasing local produce at the Abingdon Farmers Market Image: www.asdevelop.org

3. Why is a non-profit working on Risk Management? • Appalachian Sustainable Development has received several grants from the Risk Management Agency to work on improving the production environment for producers • Based upon losses experienced by several of our growers in the Appalachian Harvest network • In 2012, ASD applied for a grant to look more closely at crop insurance and to develop a web GIS • ASD has no vested interest in whether farmers purchase policies, want to equip producers with information and tools to make the best decisions they can for their farms

4. The Risk Management Agency (RMA) United States Department of Agriculture (USDA) http://www.rma.usda.gov/ “RMA provides economic protection and risk management tools to America’s farmers and ranchers primarily through federally sponsored crop insurance delivered and serviced by private insurance companies” RMA also issues grants, like the one that funded this ASD project!

5. History and Current State of US Farm Programs for Risk Management • US farm programs came out of the Dust Bowl in the 1930’s, 1938 Federal Crop Insurance Corporation established • Up to the 1990’s mostly programs for row crops and commodities • Crop insurance is growing as one of the largest areas of farm spending • Moving away from disaster assistance and direct payments to crop insurance • Imperative that beginning producers and specialty crop producers join this conversation to contribute to the design of effective policies Image source: www.iptv.org

6. A Brief Introduction to Risk Management • Different types of risk in operating an agricultural business • Production Risk-weather, pest, disease • Marketing Risk-prices, rising input costs • Financial Risk—ex. farm policy on your buildings/livestock • Legal Risk—ex. liability insurance • Human Resource Risk—relationships that affect your business • Assessing your risk: http://farm-risk-plans.rma.usda.gov/index.aspx?action=riskman.home • Designing a risk management program adapted for your operation takes all of these factors into account

7. (Some) Risk Management Options Federally Subsidized Crop Insurance • APH (Actual Production History) • Protects against yield loss • Not available in many SWVA counties • Check here: http://www.rma.usda.gov/tools/ • Go to actuarial information browser, tools, click current year • Revenue Insurance • Revenue protection (price and yield) • Whole Farm Revenue Insurance • Index Insurance • Loss determined by area—hay/forage • Request for written agreement • Make a special request if a policy is not available in your county NAP Non-Insured Crop Disaster Assistance Program • Not crop insurance • $250/crop, up to $750 for an operation Map source: www.rma.usda.gov/data/cropprograms.html

8. Managing production risk through AGR Lite Crop Insurance • Subsidized whole farm revenue crop insurance • Not commodity based • Means that you can be growing different crops, expanding, or experimenting • Can insure both crops and livestock in one policy (only federally subsidized crop insurance policy which does this) • Allows organic/local producers to incorporate price premiums they receive into their projected revenue calculation • Purchased through private insurer, underwritten by federal government (USDA RMA) • Provides producer with a payment when revenue falls below loss inception point while incurring at least 70% of average costs • Covers a wide range of risks which would cause low revenue • Weather, low prices, pest, and disease etc. • Not neglect or mismanagement

9. National AGR Lite Coverage

10. How AGR Lite works: • Adjusted Gross Revenue (AGR) is calculated based upon tax records for past 5 years • Average expenses calculated for past 5 years • When revenue falls below loss inception point due to causes other than neglect or mismanagement and average expenditures are made, a payment is triggered Source: AGR Lite Wizard, 2013

11. Do you qualify? • Must have had the same farm for 7 years, producing 5 years and able to supply farm income tax records • For 2014 enrollment, need 2008-2012 tax records • Have less than 2 million in Farm Income (1 million in liability) • Targeted toward organic and mixed/diversified producers • Minimum of 1-3 commodities based on coverage level • Tends to be the ‘best value’ when producers have between 3-10 commodities • Important exemptions: • Does not cover any value-added activities • Ex: making apple cider from apples • Can still use, but need to adjust revenues down for value added • No more than 50% income from resale • No more than 83.35% potatoes

12. Determining whether AGR Lite is right for you! • AGR Lite Wizard • https://www.agrlitewizard.com • Developed and tested with farmers (NCAT, 2012) • Web and CD based tool • Create a secure, individualized account • Work through two real farm examples from Southwest Virginia based upon data entered into the AGR Lite Wizard

13. Steps to work through AGR Lite Wizard • Determine eligibility • Enter your revenue history (taxes 2008-2012) • Enter your planned production---Need help with prices/volume? Try here: http://asdevelop.org/resources/“Market Income Calculator” includes an organic and conventional farmers market and restaurant price survey • Choose your level of coverage and calculate your premium • Walk through various loss scenarios • Search for an appropriate insurance provider in you area • Print necessary forms to take directly to an insurance provider

14. Market Income Calculatorhttp://asdevelop.org/resources/ *Market Income Calculator was produced as part of another USDA RMA Grant!*

15. Appalachian Harvest Farm Example 1-AGR Lite Wizard • Diversified Organic/Sustainable farm • Lee County, Virginia • Greenhouse crop • 1 acre Organic Tomatoes • 1 acre Organic Squash • 1 acre Organic Turnips • 3 head Grass Fed Cattle

16. Flood Loss Scenario • Lose about 1/3 of greenhouse crop and all tomatoes • Projected income: $94, 800 • Actual income: $69,980 • Loss inception point: $75, 840 • Loss payment: $5,860 (90% of loss below inception point) • Premium: $2,692 Source: AGR Lite Wizard, 2013

17. Flood Loss-Comparison to NAP

18. Severe Loss Scenario-Pest Infestation • 50% yield loss on greenhouse, tomatoes, squash, and turnips • Projected income: $94,800 • Actual income: $49,500 • Loss inception point: $75,840 • Loss payment: $23,706 (90% of loss below inception point) • Premium: $2,692 Source: AGR Lite Wizard, 2013

19. Pest loss-Comparison to NAP

20. Choosing Your Coverage

21. Choosing Your Coverage

22. Fall Crops and Cattle Producer Example 2-AGR Lite Wizard • Diversified Conventional Producer of fall crops and cattle • Carroll County, Virginia • 40 acres of pumpkins • 25 acres of pie pumpkins • 15 acres of gourds • 80 head feeder cattle

23. Moderate Loss Scenario-“Wet Year” • Lose 50% of pumpkins, 33% of gourds and pie pumpkins • Projected income: $248,800 • Actual income: $172,800 • Loss inception point: $199,040 • Loss payment: $23,616 (90% of loss below inception point) • Premium: $8,320 Source: AGR Lite Wizard, 2013

24. Wet year-Comparison to NAP

25. Severe Loss Scenario- Hail • Lose 75% of pumpkins, pie pumpkins, and gourds • Projected income: $248,800 • Actual income: $120,800 • Loss inception point: $199,040 • Loss payment: $70,416 (90% of loss below inception point) • Premium: $8320 Source: AGR Lite Wizard, 2013

26. Hail loss-Comparison to NAP

27. Choosing Your Coverage

28. Choosing Your Coverage

29. Enrollment Deadlines: AGR Lite and NAP AGR Lite • Use the Wizard to: • Search for an insurance agent licensed to sell AGR Lite insurance • Print out the forms to take directly to your agent • Sign up for AGR Lite in a given year is typically by March 15 Any date other than a Feb 15 date sign-up is in the calendar year prior to the year of coverage.  For example, a policy for 2014 grapes must be purchased by 11/20/2013.

30. Connecting to your options: ALL Federally Subsidized Crop Insurance Disaster Assistance NAP Purchased through the Farm Service Agency Sign up in your county office Locate your county office: http://offices.sc.egov.usda.gov/locator/app?service=page/CountyMap&state=VA2&stateName=Western%20Virginia • Purchased through a private insurer, policies underwritten by the federal government • Agent locator: http://www.rma.usda.gov/tools/agent.html Need crop insurance or NAP to qualify for federal farm disaster assistance

31. Available Additional Resources: RMA Risk Management Check Sheet: http://farm-risk-plans.rma.usda.gov/index.aspx?action=riskman.home AGR Lite fact sheet http://www.rma.usda.gov/pubs/rme/agr-lite.pdf NAP fact sheet http://www.fsa.usda.gov/Internet/FSA_File/nap_august_2011.pdf Encourage you to try the online AGR Lite wizard https://www.agrlitewizard.com National Center for Appropriate Technology (NCAT) ATTRA Hotline 1-800-346-9140 (English) 7 a.m. to 7 p.m. Central Time https://attra.ncat.org/ask.php Contact ASD: asd@asdevelop.org

32. Thank you!!!! Appalachian Sustainable Development would sincerely appreciate your feedback about today’s webinar and experiences with Risk Management Post Webinar Survey: (will remain open indefinitely) http://stellarsurvey.com/s.aspx?u=D88C87DB-DFFB-4BDD-906B-4A59BD0D82A5& Funding for this ASD project is supported by USDA RMA