Where can the agricultural producer turn for economic relief?

March 12, 2007

In the wake of the devastating January 2007 agricultural events, including the citrus freeze in California and the Colorado livestock blizzard, farmers and ranchers are looking for answers — hard answers dealing with their economic survival.

In California alone, damage to the state’s crops could amount to $1 billion, according to USA Today (Jan. 20, 2007). Nearly three quarters of the estimated loss is associated with the citrus industry. Not only is the agricultural risk suffering loss of future revenue due to the disaster, but it is also incurring extra expenses such as extra hay and feed to livestock sometimes brought in by helicopter to areas unreachable because of the storms.

Where can agricultural producers and ranchers turn for relief? The most obvious place to turn is to the government — both state and federal for subsidized loans or disaster payments. In fact, it is often the availability of government assistance that creates a stumbling block when selling forms of insurance that may, in part, provide a financial solution.

Narrow solutions

The forms of insurance available to the agricultural customer are narrow, at best. “Standard” commercial property or farm property forms have specific language that either excludes growing crops and livestock from the form coverage; limits coverage for growing crops and livestock or eliminates the situations that cause a loss from coverage such as death by freezing, flooding, disease or other natural disasters.

More specific forms for livestock would include mortality policies or livestock forms. While these forms may provide coverage for the animals themselves, the coverage typically does not apply to loss of revenue as a result of the loss to the animals.

Crop insurance is one of the first avenues of recovery in a weather related loss such as those experienced in the beginning months of this year. The valuation clause of the crop forms is important to the recovery on the crop losses themselves. New crop forms have recently been developed that specifically deal with revenue losses that a farm may suffer.

Farm revenue protection

Adjusted Gross Revenue (AGR) is a federally subsidized farm revenue insurance policy. The policy provides protection against low revenue due to unavoidable natural disasters and market fluctuations that occur during the insurance year. Covered farm revenue consists of income from agricultural commodities, including incidental amounts of income from animals and animal products and aquaculture reared in a controlled environment. Coverage in general covers any unavoidable natural disaster with a maximum liability not to exceed $6.5 million.

Adjusted Gross Revenue Lite (AGR-Lite) is a new federally subsidized, whole farm revenue insurance policy. This policy provides protection against low revenue due to unavoidable natural disasters and market fluctuations. AGR-Lite is similar to business interruption protection for an agriculture operation. Producers can insure their gross “farm” income from 65 percent to 80 percent of their previous five-year average, depending on their commodity diversification.

AGR-Lite was developed by the Pennsylvania Department of Agriculture in 2003 and is available to producers in 28 states including: Alaska, Arizona, Colorado, Connecticut, Delaware, Idaho, Kansas, Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

Policies are limited in size to a maximum liability of $1 million annually. Most farm-raised crops, animal and animal products are eligible for protection. The plan uses a producer’s five-year historical farm average revenue, as reported on IRS tax returns (Schedule F or equivalent forms) and the current year’s annual farm report.

The AGR-Lite plan can stand-alone or be used in conjunction with most other federal crop insurance plans. If AGR-Lite is combined with MPCI coverage, the premiums are pro-rated. It provides insurance coverage for multiple agricultural commodities under one insurance product. It simplifies the insurance process by eliminating the need to file multiple crop acreage reports and/or production reports. Loss payments are triggered when the adjusted income for the insured year is less than the loss inception point.

AGR-Lite works well for producers who grow commodities for direct sales, including organic production, and herb and vegetable producers, fruit producers, and livestock producers. Most of the states that offer this coverage have a sales closing deadline of March 15, 2007. For information, visit: www.rma.usda.gov. Insurance agents should contact their companies to obtain coverage details for their agriculture clients.

This could be the revenue protection your clients need.

Rita G. McMullen is the president of PDM Insurance Agency Inc. in Chambersburg, Pa., and Laurie Infantino is the president of Huntington Beach, Calif.-based Insurance Skills Center. Both McMullen and Infantino are presenters at the Agribusiness Conference in Sacramento, Calif., March 14-15.

Topics Profit Loss Agribusiness

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