- A Risk Management Alternative
Wen-fei Uva, Ph.D.
Department of Applied Economics and
Management
Cornell University

BACKGROUND FOR AGR:
AGR insurance plan is a nontraditional, whole farm risk management tool which uses a producer’s historic tax information to provide a level of guaranteed revenue.

•
Provides a safety net for farm revenue
•
Provides insurance coverage for multiple commodities under one insurance product
•
Cash is a common measurement
• Uses a producer’s historic
Schedule F tax form information to provide a revenue base for the insurance period
•
Uses the AGR farm report to determine coverage

•
Producing agriculture commodities in a
Pilot County (may include income from contiguous non-pilot counties).
•
Have 5 years Schedule F tax forms (or equivalent) under the same entity
•
No more than 35% of expected allowable income can be from animals and animal products.

•
No more than 50% of allowable income may come from products purchased for resale. -is available for diversified producers of minor crops, as well as direct marketers.
•
If more than 50% of expected income is from insurable crops, MPCI must be obtained (if available.) Note: protection, benefits, and premiums are coordinated.

New England States (All Counties)
New York (16 Counties)
New Jersey (All Counties)
Pennsylvania (6 Counties)
Maryland (21 Counties)
Delaware (All Counties)
Virginia (26 Counties, 14 Cities)

In 2001 & 2002, subsidy and costshare were available for
Underserved Northeast Producers in the pilot areas.
Signup deadline was January 31 in
2001 and 2002.





Application
Five Years Schedule F Forms
Annual Farm Report:
–
5 year AGR allowable income and expense history
–
Intended Commodity Report - To estimated enterprise revenue for the insurance year
Beginning Inventory

Application Form FCIC 18050





Application
Five Years Schedule F Forms
Annual Farm Report:
–
5 year AGR allowable income and expense history
–
Intended Commodity Report - To estimated enterprise revenue for the insurance year
Beginning Inventory

5 continuous years of Schedule 1040 F





Application
Five Years Schedule F Forms
Annual Farm Report:
–
5 year AGR allowable income and expense history
–
Intended Commodity Report - To estimated enterprise revenue for the insurance year
Beginning Inventory

Annual Farm Report - AGR Form 821 r
UNI TED ST ATES DEP ARTMENT O F AGRICULTU RE
Federal Crop Insurance Corporation
TE D GROS S REVENUE (AGR) REPO RT
ANNUAL FARM REPORT Š Form 821
INTE NDED C OMMO DITY REPO RT
Commodity
Name/Code
Allowable Income
Allowable Expenses Strawberri es 0628
# Years
Produced
6
Intended
Amount
Total
Amount
AGR
GR
511,893
636,116
835,534
866,673
950,350
3,800,566
760,113
760,113 x (1.651
4
$ 917,239
) = 1,254,569
458,236 Whol esale
572,795 Retai l
973,757 Peppers 0104 - Whole sale
828,030 Cucumbers 0603 - W holesale
925,202 Tomatoes 0086
Whol esale
3,758,020 Retai l
751,604 Cherry Tomatoes 0086 -
W hole sale
Sweet Corn 0044
Whol esale
Re tail
Summer Squash 0014 - W hol esale
Cabbage 0070- Whole sale
Beans 0082- W holesale
Peas 0064- W hole sale
$ 1,254,569
Sugar Peas 0064- Whole sale
Blueberries 0012
Whol esale
Re tail
Fancy Peppers 0045- W holesal e
Eggplants 0613- W hol esale
W in ter Squash 0652- W hole sale
Guards 0652- W holesale
Pumpki ns 0605- W hole sale
Muskmelon 0101- W holesale
Wate rmelon 0101- W holesale
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
6
20 acres
4 acres
10 acres
10 acres
16 acres
2 acres
6 acres
70 acres
5 acres
5 acres
5 acres
5 acres
3 acres
3 acres
3.5 acre s
0.5 acre s
2 acres
2 acres
5 acres
2 acres
6 acres
1 acres
3 acres
130,000 qt.
20,000 qt.
11,000 bu.
4,000 bu.
12,000 boxe s
400 bu.
126,000 pt.
7,700 bu.
550 bu.
10,000 _ bu.
2,700 boxe s
1,115 bu.
363 bu.
435 boxe s
7,280 pt.
500 pt.
1,500 bu.
1,500 bu.
2,500 bu.
1,000 _ bu.
60 tons
500 boxe s
45 tons
Expected Value
$ 1.5
195,000
$ 1.5
30,000
$ 8.0
$ 12.0
88,000
48,000
$ 12.5
150,000
$ 10.0
4,000
$ 0.6
75,600
$ 10.0
$ 14.0
$ 8.0
$ 7.0
$ 20.0
$ 25.0
$ 30.0
$ 1.3
$ 1.3
$ 9.0
$ 8.0
$ 11.0
$ 10.0
$ 200.0
$ 9.0
$ 200.0
Dollars
77,000
7,700
80,000
18,900
22,300
9,075
13,050
9,464
650
13,500
12,000
27,500
10,000
12,000
4,500
9,000
Total Numbe r Commoditie s 13 Total Expe cted Income $ 917,235

Allowable Income
•
Sales of animals and commodity raised and bought for resale
•
Taxable amount of cooperative distributions
•
Commodity Credit Corporation Loans
•
Taxable amount of CCC funds forfeited
•
Other income (bartering, by-passed acreage, diversion payments.

Excluded AGR Income
•
Value from post-production value added operations such as processing, packing, packaging, storage, etc.
•
Basis of commodities purchased for resale
•
Cooperative dividends (non-production)
•
Custom hire
•
Ag program and crop insurance payments
•
Net Gain from commodity hedges

Indexed Allowable Income
Question: For a growing operation , will you be able to insure at a higher level?
Answer : YES!
You are permitted to index your coverage upward by a Max of 20% a year based on the five-year history of schedule F revenue .
Maximum adjustment: (1.20) 4 = 2.07
x 5year Average Allowable Income

Calculating Indexed Allowable
Income
Indexed factor
1. 1996 allowable income $636,116  1995 allowable income $511,893 = 1.243
1.200
2. 1997 allowable income $835,534  1996 allowable income $636,116 = 1.313
3. 1998 allowable income $866,673  1997 allowable income $835,534 = 1.037
1.200
1.037
4. 1999 allowable income $925,202  1998 allowable income $866,673 = 1.097
1.097
5. Average Indexed Factor
6. Income Trend Factor = (Average Indexed Factor) 4
= 1.133
4 = 1.133 x 1.133 x 1.133 x 1.133 = 1.651
7. The Adjusted AGR = Average Allowable Income x Income Trend Factor
= $760,113 x 1.651 = $1,254,569
= 1.133

Although the maximum adjustment is 2.07 times of the 5-year Average Allowable
Income:
You can only insure the LESSER of
• the indexed allowable income, or
• the expected revenue from the intended commodity report





Application
Five Years Schedule F Forms
Annual Farm Report:
–
5 year AGR allowable income and expense history
–
Intended Commodity Report - To estimated enterprise revenue for the insurance year
Beginning and Ending Inventory

Inventory Market Value
•
Beginning Inventory: Will be valued at the local market value on January 1 of the insurance year, or the first day of the month in which the fiscal tax year begins.
•
Ending Inventory: Will be valued at the local market value on December 31 of the insurance year, or the last day of the month in which the fiscal year ends.

Coverage
Level %
Payment
Rate %
65
Coverage Election
75
Min # of
Crops
1
USDA
Premium
Share
59
65 90 2* 59
75 75 or 90 3* 55
80 75 or 90 4* 48
* Must meet minimum income qualification

Diversification Formula
(1/Number Of Crops * 0.333) * (Total
Expected Income)
= 1/19 * 0.33 * $1,449,670 = $25,178

Agricultural Commodity Profile
•
Insured who select the 75 and 80 percent coverage levels are required to complete the Agricultural Commodity
Profile
•
This report required additional information about commodity marketing

Agricultural Commodity Profile -
AGR Form 823
UNI TED ST ATES DEP ARTMENT O F AGRICULTU RE
Federal Crop Insurance Corporation
AGRIC ULTURAL COMMODITY PROFILE Š FORM 823
PART I – PRODUCER INFO RMATIO N
SAMP LE FARM
Strawberries
Cabbage
Blueberries
Raspberries
Sweet Corn
Tomatoes
Peppers
Squash,
Summer
Melons
Tomatoes
Pumpkins
Fall Squash
Indian Corn
Apples
Apples
CROP
OR
COMMODITY
TAX YEAR
1995
Acres Market %
13
9
5
2
46
20
37
1
W/R
W/R
W/R
W/R
W/R
W/R
W/R
W/R
1 80/20
95/5
80/20
50/50
80/20
80/20
80/20
80/20
I
I
I
I
I
Irr.
Prac.
I
I
I
3
1
7
1
10
W/R
W/R
W/R
W/R
R
P for
R 2
50/50
90/10
70/30
90/10
100
100
No
I
I
I
I
TAX YEAR
1996
Acres Market %
2
52
15
35
1
15
10
5
W/R
W/R
W/R
W/R
W/R
W/R
W/R
W/R
80/20
95/5
80/20
50/50
80/20
80/20
80/20
80/20
I
I
I
I
I
Irr.
Prac.
I
I
I
TAX YEAR
1997
Acres Market %
25
12
5
W/R
W/R
W/R
1 80/20
95/5
80/20
Irr.
Prac.
I
I
I
41
25
35
2
W/R
W/R
W/R
W/R
80/20
80/20
80/20
80/20
I
I
I
I
1
1
7
10
10
W/R
W/R
W/R
W/R
R
P for R
50/50
90/10
70/30
90/10
100
100
I
I
I
I
NO
1
1
20
17
10
N/A
W/R
W/R
W/R
W/R
R
P for
R 2
50/50
90/10
70/30
90/10
100
100
NO
I
I
I
I
TAX YEAR
1998
Acres Market %
1
50
25
30
2
18
12
5
W/R
W/R
W/R
W/R
W/R
W/R
W/R
W/R
1 80/20
95/5
80/20
50/50
80/20
80/20
80/20
80/20
I
I
I
I
I
Irr.
Prac.
I
I
I
TAX YEAR
1999
Acres Market %
1
60
25
33
5
18
14
5
W/R
W/R
W/R
W/R
W/R
W/R
W/R
W/R
1 80/20
95/5
80/20
50/50
80/20
80/20
80/20
80/20
I
I
I
I
I
Irr.
Prac.
I
I
I
1
2
20
17
1
8
N/A
W/R
W/R
W/R
W/R
W/R
R
P for
R 2
50/50
90/10
70/30
90/10
90/10
100
100
I
I
I
I
I
I
NO
4
2
23
27
1
8
N/A
W/R
W/R
W/R
W/R
W/R
R
P for
R 2
50/50
90/10
70/30
90/10
90/10
100
100
I
I
NO
I
I
I
I

The Event of Damage or Loss
Coverage:
•
Covering income from crops & other agricultural commodities
•
Loss of revenue by unavoidable cause occurring during the insurance period.
•
Abandonment is not permitted.
• “Your decision not to harvest due to low market prices will not be considered abandonment.”

Will not cover loss due to:
• Negligence, mismanagement, wrongdoing
•
Failure to follow good management practices
• Water contained by any government, public, private dam or reservoir
•
Failure of irrigation equipment or facilities
•
Theft and vandalism
•
Inability to market the crop due to quarantine, boycott or refusal of anyone to accept crops
• Lack of labor
•
Failure of buyer to pay for commodities

The Event of Damage or Loss
•
Notice of damage or loss
•
Cause of loss
•
File tax for the insurance year
•
Convert to accrual accounting basis
•
Finalize other insurance claims covering insured commodities
•
Report all changes which are different than the initial farm report
•
Adjust allowable income if expenses fall below 70% of approved expenses

Impact of AGR Insurance on
Stabilizing Revenue
Approved AGR = $720,636
Coverage Election
Revenue
Loss
No Insurance 80/75
20%
Revenue Payment Revenue
Dollars ($)
576,509 0 576,509
30%
40%
504,445
432,382
54,048 558,493
108,095 540,477
50%
360,318 162,143 522,461
100%
0 432,382 432,382

Producer Premium Elements
•
Number (diversity) of crops
•
Type and proportion of crops
•
MPCI coordination
•
Producer subsidy
• 65% Coverage Level - 59%
•
75% Coverage Level - 55%
• 80% Coverage Level - 48%
•
Additional 50% cost share for
Underserved Areas (inc. NY pilot ctys)

Premium Calculation Example
A diversified vegetable farm in a NY pilot county
Approved AGR = $720,636
Coverage Level
Payme nt Rate
90%
75%
65%
$
1,722
1,297
75%
$
3,525
2,707
Less than 1% of Gross Sales
80%
$
5,647
4,367

2001/2002 AGR Program Sales Information for the NE Under-served Area
(As of June 3, 2002)
CONNECTICUT
DELAWARE
MAINE
MARYLAND
MASSACHUSETTS
NEW HAMPSHIRE
NEW JERSEY
NEW YORK
PENNSYLVANIA
RHODE ISLAND
VERMONT
Total Northeast
2001 Policies
24
0
3
9
36
4
37
79
5
2
___7____
206
2002 Policies
31
0
4
19
35
5
28
82
7
1
____ 8___
220

2001/2002 AGR Program Sales Information for New York Counties
(As of June 3, 2002)
CAYUGA
CHAUTAUQUA
ERIE
GENESEE
MONROE
NIAGARA
ONONDAGA
ONTARIO
ORANGE
ORLEANS
OSWEGO
SENECA
SUFFOLK
ULSTER
WAYNE
YATES
Total NY’s Pilot Counties
2001 Policies
0
5
38
2
79
3
9
3
3
2
3
2
0
4
3
1
1
2002 Policies
0
4
44
__1
82
2
9
3
4
2
2
2
0
5
3
1
0

2001/2002 AGR Program Sales Information by Coverage, NY and NE
(As of June 3, 2002)
NY
Coverage level 2001 poli cies 2002 poli cies
65%
75%
80%
19 (24%)
46 (58%)
14 (18%)
21 (26%)
44 (54%)
17 (21%)
NE 65%
75%
80%
65 (32%)
96 (47%)
45 (22%)
62 (28%)
94(43%)
64 (29%)

Any Concern About Using
Schedule F?
Suppose you have been using “creative tax management strategies!”
-- “We assume that anyone who cheats on his income taxes will do it consistently!”
AGR might not be for everyone:
Provide producers of crops without individual crop insurance programs an insurance alternative to guarantee a revenue level

Additional Information
Adjusted Gross Revenue Pilot Crop Insurance
Program for Specialty Crops at Michigan State
University
• www.aec.msu.edu/agecon/blackj/agr.htm
Risk Management Agency
• www.rma.usda.gov
Cornell Risk Management Web-site for Specialty
Crops
• http://hortmgt.aem.cornell.edu/programs2.
htm