Pasture Range Forage Vegetation
Index Insurance
James B. Johnson
Vince Smith
MSU Department of Agricultural Economics and Economics
Collaborating Partners: Billings RMA Regional Office
Fort Peck Community College
Riverton, Wyoming
February 23, 2009
1
Pasture, Rangeland, Forage Vegetation
Index (PRFVI) Pilot Program
• A pilot insurance program that provides
protection against losses of forage on
grazingland and/or or hayland.
• PFRVI insurance is available in all
Wyoming counties.
2
PRF Vegetation
Index Insurance Program
•
A vegetation index is used to indicate the amount of forage
production on grazing land and hayland.
•
The vegetation index is called the Normalized Difference
Vegetation Index (NDVI).
•
The NDVI index is a “temperature constrained” index calculated
from:
(a)
Satellite vegetation data provided by the U.S.
Geological Survey Earth Resource Observation
and Science data center
(b)
“Gridded” average daily temperature data
produced by the National Oceanic and
Atmospheric Administration (NOAA).
and
3
PRF Vegetation
Index Insurance Program
•
The raw NDVI Index takes on values from 0.0 to 1.0.
•
It is based on reflection measurements that indicate
the amount of vegetation on the ground.
•
Visible light values are sensitive to the amount of
green chlorophyll in a plant which can absorb light,
while infrared light is sensitive to the amount a plant
cells inside a leaf which reflect back to a satellite.
•
The more chlorophyll, the higher the NDVI value
recorded by a satellite's sensor.
4
PRF Vegetation
Index Insurance Program
•
Vegetation can remain green in very cold or very
hot weather and yet not grow.
•
So, the raw satellite vegetation index data are
corrected using “on the ground” measures of
temperatures provided by NOAA to more closely
reflect actual plant growth
•
Optimum plant growth temperatures are also
adjusted for the elevation of the area to which
each NDVI applies.
5
Pasture, Rangeland, Forage Vegetation
Index (PRFVI) Pilot Program
The PRFVI is:
•
A Group Risk Program that provides insurance against
reductions in the NDVI below its average value for each
insurance or “grid” area.
•
The product is used by producers with forage production
on grazingland or hayland (feed for livestock comprised of
plants grown for haying or grazing).
•
Producers need to recognize that it is possible for them to
have low forage production on the acreage they insure
and still not receive a payment under this group risk plan.
•
The actuarially fair Insurance premiums are subsidized by
the federal government
6
PRF Vegetation Index
Insurance Program: Concepts
• Most GRP insurance programs are based
on county level information
• The PRFVI program is based on
geographic grids.
• A grid includes all land within is 4.8 mile
by 4.8 mile area and is identified by
longitude and latitude.
• A unique NDVI exists for each grid in
each insurance time period.
7
PRF Vegetation Index
Insurance Program: Concepts
•
Grid Identification Number (GRID ID): A specific
code associated with each grid contained in the
actuarial documents for the PRFVI program.
•
The grid ID is determined by a geographic “point of
reference” selected by the forage producer that
identifies the location of the area the producer wants
to insure. A part (but not all) of the area to be insured
must be in the selected GRID
•
The RMA website provides producers and insurance
agents with information about the NDVI for each grid
8
and the PRFVI product for that grid.
PRF Vegetation Index
Insurance Program: Concepts
•
The insured crop is defined as pasture,
rangeland, or forage.
•
There are two crop types: grazingland and
hayland.
•
Grazingland has an established stand of forage
suitable and intended for grazing by livestock.
•
Hayland has an established stand of forage
suitable and intended for haying.
9
PRF Vegetation Index Insurance
Program: Acres to be Insured
•
A producer does not have to insure all of the
insurable acreage of grazingland or hayland in
a grid.
•
The producer chooses the acres to be insured.
•
Some grazingland may not be insurable (for
example, the area may be too steeply sloped, or
too far from water for livestock to graze it).
•
Some land in a hayland area may also be
uninsurable (because it is not suitable for
mechanical harvesting).
10
PRF Vegetation Index Insurance
Program: General Principles
• Each grid’s NDVI index is normalized so
that the value of 100 represents average
vegetation growth. (Historical values for
each grid’s NDVI are available on RMA’s
PRF website).
• A producer will receive an indemnity
payment when the NDVI value for the
grid falls sufficiently far below its normal
value in the vegetation production period
in which the producer’s has chosen to
insure against poor forage growth.
11
PRF Vegetation Index: Example
from Fremont County
300
250
200
150
100
50
Interval I
Interval II
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
12
PRF Vegetation Index
Insurance Program: Implementation
•
The crop year for the PRFVI product begins on April 1 of
the current year and ends on March 31 the following crop
year.
•
The crop year is divided into four periods referred to as the
“index intervals.” These intervals are:
•
•
Interval I:
April 1 through June 30
•
Interval II:
July 1 through September 30
•
Interval III:
October 1 through December 31
•
Interval IV:
July 1 through March 31
A producer must select the interval(s) for insuring forage
production on the hayland and/or grazingland to be
covered in each grid.
13
PRF Vegetation Index
Insurance Program: Interval Selection
Each producer must decide on which intervals they want to select to
insure against losses in forage production. For example:
a.
A producer may be concerned that a lack of Fall or Winter precipitation
could result in lack of forage in Interval II. So the producer may choose
to insure against low levels of vegetation production in a grid in that
interval
b.
A producer’s forage stand of 1280 acres may have a mixture of plant
species maturing at different times of the year. For instance, there may
be the early season grasses and late season grasses within an
insurable grazingland parcel.
So the producer may want to insure 480 acres in interval I and 800
acres in interval III.
14
PRF Vegetation Index Insurance
Program: Amount of Insurance
•
County Base Value: The production value of grazingland or
hayland forage production in a county (determined by RMA for
each county).
•
Coverage Level: The percentage of the county base value
chosen by the producer for insurance coverage on forage
production.
A producer may choose a coverage level of 70, 75, 80, 85 or 90
percent.
Producers must insure each grid in the same county at the same
coverage level.
•
CAT coverage is not available for the PRFVI.
15
PRF Vegetation Index Insurance
Program: Amount of Insurance
Grazing land and hayland have different county
base values. For example, in Fremont county:
Country base value for grazingland = $8.72
per acre
County base value for hayland = $197.65 per
acre (and is the same for all Wyoming counties).
16
PRF Vegetation
Index Insurance Program
•
Productivity Factor: A percentage between 60 and 150 percent
chosen by the insured producer to reflect their individual
operation’s forage productivity relative to the county base value.
•
Producer Share: The operator’s share of the forage production.
Producers may select coverage levels and productivity factors
to reflect the forage production value of the acreage they are
insuring.
For example, a producer may believe that the value of forage
production on the insured area is similar to the county base value.
So the producer may select a coverage level (say 90%) and
productivity factor (say 110%) to obtain coverage approximately
17
equal to the county base value.
PRF VegetationIndex Insurance
Program: Amount of Insurance
•
Dollar Amount of Protection per Acre = county base value per
acre for the crop type x coverage level x productivity factor.
A producer can select only one dollar amount of protection for
each crop type in a grid.
•
Policy Protection per Unit: The dollar amount of protection per
acre x the number of insured acres x the producer’s share of
the area insured in each unit.
A producer may have between one and four units in each grid,
reflecting the number of index intervals in which the producer has
purchased insurance.
•
Policy Protection: The sum of the policy protections chosen by
the producer for each insured unit in a grid.
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PRF VegetationIndex Insurance
Program: Insurance Premiums
For Each Unit:
Total Premium
= Dollar Protection Per Acre x
Number of Insured Acres/Unit x
Premium Rate per $100 of Insurance x
Adjustment factor (=0.01) x
Producer Share
Premium Subsidy = Premium per Unit x Subsidy rate
Producer Premium = Total Premium per unit − Premium subsidy
per unit
*
The adjustment factor expresses the premium rate on a per dollar of
insurance rate because the premium rate is quoted in terms of dollars
per $100 of insurance.
19
PRF Vegetation Index Insurance
Program: Indemnities
•
Indemnities are paid when the grid’s average NDVI index for a specific
interval is sufficiently low.
•
The Expected GRID Index for each interval is established by the Risk
Management Agency using historical data on the NDVI for that interval
and always equals 100.
•
The Expected Grid Index is therefore known to a producer prior to the
November 30 sales closing date.
•
A producer can examine a grid’s NDVI historical values for each
interval for the period 1989 to the current year using the RMA website
for the PRFVI.
20
PRF Vegetation Index Insurance
Program: Indemnities
•
The Final Grid Index Value for a specific interval is
determined by the Federal Crop Insurance Corporation
using the average NDVI value observed for the grid
during the interval.
•
An NDVI value of 100 represents the average value for
the index in the interval of interest.
•
An NDVI value of less 100 represents a lower than
average value for that interval (and lower than average
plant growth in the grid in that interval).
•
The Final Grid Index Value for an interval can only be
calculated after the end of the interval.
21
PRF Vegetation Index Insurance
Program: Indemnities
•
The Trigger Grid Index = 100 x the coverage level (selected
by the producer).
•
An indemnity payment is made if the Final Grid Index
(determined by RMA) is less than the Trigger Grid Index.
•
Indemnity payment = Policy Protection per Unit x
Payment Calculation Factor (PCF).
where
PCF = [Trigger Grid Index – Final Grid Index]/ Trigger Grid Index.
•
Insurance payments are relatively timely as final grid indexes
can be computed immediately after each index interval has
ended and no information about forage yields has to be
provided by producers.
22
PRFVI Insurance Program: A hayland
example in a Fremont county grid
Contract Data
County Base Value
(CBV)
Selected Value
$197.95/acre
Procedure
This hayland value is established by
RMA .
Coverage Level
(CL)
90%
The producer chooses one of the
following: 70, 75, 80, 85, or 90
percent.
Production Factor
(PF)
110%
The producer chooses a value in the
range of 60 to 150 percent.
Dollar Amount of
Protection Per Acre
Grid 0001
Interval II
Unit Protection
$195.67
320 acres
$62,614
$197.65 x 1.10 x 0.90 (CBV x CL x PF)
The grid number is assigned by RMA
using the reference number provided
by the producer.
$195.67/acre x 320 acres x 100%
share
23
PRFVI Insurance Program: A hayland
example in a Fremont county
Contract Data
Policy Protection
Premium Rate per $100
of protection
Total Premium
Premium Subsidy Rate
Value
$62,614
$7
$4,383
51 %
Calculation
Sum of the amount of unit protection for all insured
units (one unit in this example)
Determined by RMA
$62,614 x 0.07
Determined by RMA
Premium Subsidy
$2,235
$4,383 x 0.51
Producer Premium*
$2,148
$4,383 – 2,235
Expected Grid Index
Interval II
100
RMA specifies in actuarial information
Trigger Index
90
100 x 0.90 coverage level
Final Grid Index for
Interval II
65
The values are calculated from NDVI values at the
end of the interval
*Producers also must pay an additional $30 administration fee
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PRF Vegetation
Index Insurance Program
•
Indemnity Per Unit =
Policy Protection per Unit x
Payment Calculation Factor
=
$62,614 x [(90 – 65) / (65)]
=
$62,614 x 0.2777 - $17,388
25
PRF Vegetation
Index Insurance Program
•
PRF is not available at the catastrophic coverage level (CAT
level).
•
The Farm Service Agency policy applicable to the 2009
production year is therefore that NAP (Noninsured Crop
Disaster Program) may be used for:
1. Rangeland production in all Wyoming counties
2. Hay production for all types except:
•
Alfalfa
•
Alfalfa/grass
•
Grass/alfalfa
26
PRF Vegetation
Index Insurance Program
•
Producers should remember that NAP is available
on a fee per crop basis (not acre), and covers only
losses in excess of 50% of the established yield
(per SSA) at 55% of the average marketing price
for FSA.
27
PRF Vegetation Index Insurance
Program Program Summary
•
The PRFVI is a pilot group risk insurance program in
Wyoming
•
Sales closing date is November 30.
•
The program covers grazingland and hayland production
in all Wyoming counties.
•
This program is based on a vegetation index calculated for
four periods during the crop year (index intervals) that
indicate the relative amount of greenness on the ground
(as a substitute or proxy variable for forage production).
•
In Wyoming, even though PRF is available, producers who
do not use the PRFVI may NAP for rangeland production
and some types of hay production.
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