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
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
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
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!
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
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-riskplans.rma.usda.gov/index.aspx?action=riskman.home
• Designing a risk management program adapted for your
operation takes all of these factors into account
(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
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
National AGR Lite Coverage
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
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
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
Steps to work through AGR Lite Wizard
1. Determine eligibility
2. Enter your revenue history (taxes 2008-2012)
3. 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
4. Choose your level of coverage and calculate your premium
5. Walk through various loss scenarios
6. Search for an appropriate insurance provider in you area
7. Print necessary forms to take directly to an insurance provider
Market Income Calculator
http://asdevelop.org/resources/
*Market Income Calculator was produced as part of another USDA RMA Grant!*
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
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
Flood Loss-Comparison to NAP
Policy
NAP
AGR Lite
Coverage
55% of the loss below
50% of expected
production
.50 x .55 = 27.5%
90% of loss below 72% of
AGR
Loss payment
(Tomatoes only)
27.5% x $3,400 =$935
$5,860
Less Premium
-$750
-$2,692
Net:
$185
$2898
Income:
$70,065
$72,878
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
Pest loss-Comparison to NAP
Policy
NAP
AGR Lite
Coverage
55% of the loss below
50% of expected
production
.50 x .55 = 27.5%
90% of loss below 72% of
AGR
Loss payment
$0—no single crop loss
exceeds 50%
$23,706
Less Premium
$750
$2,692
Net:
-$750
$21,014
Income:
$48,750
$70,514
Choosing Your Coverage
Comparing Revenues Between NAP and
AGR Lite at Different Coverage Levels
Flood for AH Grower
90000
80000
72,127
70000
69,980
70,165
69,230
69,086
69,374
72,562
69,259
Dollars
60000
50000
Total revenue
40000
Loss Payment
Producer Premium
30000
20000
10000
4,395
0
0
0
935
0
0
840
5274
1,008
NAP 50/55 AGR 65/75 AGR 65/90 AGR 75/75 AGR 75/90 AGR 80/75 AGR 80/90
Coverage Options (Percent of Revenue Insured/Payment Rate)
Choosing Your Coverage
Comparing Revenues Between NAP and
AGR Lite at Different Coverage Levels
Pest Infestation for AH Grower
120000
100000
70,514
67,211
64,254
80000
Dollars
67,007
57,840
59,514
60000
Total revenue
49,500
48,750
Loss Payment
Producer Premium
40000
20000
16,200
0
0
0
0
750
NAP
50/55
9,090
10,908
750
894
AGR
65/75
AGR
65/90
1446
AGR
75/75
19,440
19,755
1729
2248
AGR
75/90
AGR
80/75
Coverage Options (Percent of Revenue insured/payment rate)
23,706
2692
AGR
80/90
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
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
Wet year-Comparison to NAP
Policy
NAP
AGR Lite
Coverage
55% of the loss below
50% of expected
production
.50 x .55 = 27.5%
90% of loss below 72% of
AGR
Loss payment
$0—no single crop loss
exceeds 50%
$23,616
Less Premium
$750
$8,320
Net:
-$750
$15,296
Total income:
$172,050
$188,096
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
Hail loss-Comparison to NAP
Policy
NAP
AGR Lite
Coverage
55% of the loss below 50% of expected
production
90% of loss below
72% of AGR
Loss
payment
Pumpkins
Cover 25% of loss at 55% level = $15,400
Pie Pumpkins
Cover 25% of loss at 55% level= $5,156
Gourds
Cover 25% of loss at 55% level =$ 3093.75
Total = $23,650
$70,416
Less
Premium
-$750
$8320
Net
$22,900
$62,096
Total
Income
$143,700
$182,896
Choosing Your Coverage
Comparing Revenues Between NAP and
AGR Lite at Different Coverage Levels
"Wet Year" Scenario--Pumpkin Grower
250000
185,101
200000
178,711
172,800
172,050
170,483
188,096
179,720
170,025
Dollars
150000
Total revenue
Loss Payment
100000
Producer Premium
50000
0
0
NAP 50/55 AGR 65/75 AGR 65/90 AGR 75/75 AGR 75/90 AGR 80/75 AGR 80/90
Coverage Options (percent covered/payment rate)
Choosing Your Coverage
Comparing Revenues Between NAP and
AGR Lite at Different Coverage Levels
Hail Scenario--Pumpkin Grower
300000
182,896
250000
174,700
172,541
165,711
200000
154,853
Dollars
149,173
143,700
Total revenue
150000
Loss Payment
120,800
Producer Premium
100000
50000
0
0
NAP 50/55 AGR 65/75 AGR 65/90 AGR 75/75 AGR 75/90 AGR 80/75 AGR 80/90
Coverage Options (percent covered/payment rate)
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
Non-Insured Crop Disaster
Assistance Program (NAP)
Virginia FSA Deadlines
Crop
Most grasses/forages
All sod
Aquaculture
Christmas Trees
Corn
Elephant Garlic
Flowers
Fruits (unless otherwise listed)
Ginseng
Grapes
Herbs
Honey
Maple Sap
Mushrooms
Small grains
Soybeans
Strawberry
Trees/bushes (apples, peach, pear,
cherry, blueberry, caneberry)
Vegetables
Application
Closing
Date
15-Feb
1-Sep
1-Sep
1-Sep
15-Feb
1-Sep
1-Sep
15-Feb
1-Sep
20-Nov
15-Feb
1-Dec
1-Dec
1-Sep
30-Sep
15-Feb
20-Nov
20-Nov
15-Feb
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.
Connecting to your options:
ALL Federally Subsidized Crop
Insurance
• Purchased through a private
insurer, policies underwritten
by the federal government
• Agent locator:
http://www.rma.usda.gov/tools/agent.html
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?s
ervice=page/CountyMap&state=VA2&stateNa
me=Western%20Virginia
Need crop insurance or NAP to qualify for federal farm disaster assistance
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
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-DFFB4BDD-906B-4A59BD0D82A5&
Funding for this ASD
project is supported by
USDA RMA