By: Trevor TroyerVice, President of Operations for Agricultural Risk Management
Risk Management is always something that is subjective to a grower. How much risk do you feel comfortable with? Or maybe how much risk are you willing to take, even if you aren’t that comfortable? Farmers are naturally risk takers, otherwise they would not be farming. Mother nature is unpredictable, just when you think everything is going to turn out right it doesn’t. Obviously, it turns out ok more often than not. But what about those years when it doesn’t? Sometimes you can have several bad years in a row. Crop Insurance is a good tool for that.
The Federal Crop Insurance Corporation (FCIC) was created in 1938. Originally coverage was limited to major crops. It was basically an experiment at that time, until the passage of the Federal Crop Insurance Act in 1980. The 1980 Act expanded the number of crops insured and areas in the US. In 1996 the USDA Risk Management Agency (RMA) was created. RMA’s purpose was to administer the Federal Crop insurance programs and other risk management related programs.
Grape Crop Insurance goes back to 1998, the current policy was written in 2010. Crop insurance is a partnership with Insurance companies and the FCIC. Crop insurance is partially subsidized through the USDA. Currently there are 13 Approved Insurance Providers authorized to write crop insurance policies with the USDA. Prices and premiums are set by the USDA per crop, state and county. There is no price/premium competition from one company to the next because of this. Independent insurance agents sell for these 13 different insurance providers. They may specialize in crop insurance or other lines of insurance. It is always best to work with an experienced agent that has crop insurance as their main focus.
Grape crop insurance is available in the following states; Arkansas, California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and Washington. Crop insurance is not available for grapes in all counties though. Insurable varieties are also different between states and counties. As I mentioned before prices are different between states and counties as well. The USDA price for a ton of Pinot Noir in Oregon is different than a ton of Pinot Noir in New York.
Grapes are insured under an Actual Production History (APH) plan of insurance. An average of the vineyard’s production per variety is used. Grapes need to be in their 4th growing season to be insurable. A minimum of 4 years is needed to do the average, if the grapes have just become insurable then a Transitional Yield (based on the county and variety) is used in place of any missing years. A maximum of 10 years can be used to determine the average if a vineyard has been in production for that amount time. Basically, you are insuring an average of your tons per acre per variety.
With crop insurance you cannot cover 100% of your average production. You can choose coverage levels from 50% to 85%. There is a built-in production deductible. Coverage levels are in 5% increments. Coverage levels are relative to premium, the lower the coverage the lower the premium, the more coverage you buy the higher the premium. It comes back to how much risk you feel safe with. You can also For example, if you have Cabernet Sauvignon in California and your average is 5 tons per acre. At the 75% coverage level you would be covered for 3.75 tons per acre. You would have a 25% deductible (1.25 tons per acre). To have a payable loss you would have to lose more than 25% of your average production.
The Causes of Loss per the policy are; 1. Adverse weather conditions; 2. Fire; 3, Insects; 4. Plant disease; 5, Wildlife; 6. Earthquake; 7. Volcanic eruption; and 8. Failure of irrigation water supply. There are more details to the causes of loss, you can’t have a loss due to plant disease if you are not applying sufficient and proper applications of control measures. Adverse weather conditions can be excess moisture, drought, extreme heat, frost, freeze etc. Fire can cause “smoke taint” and that is covered. Inability to market the grapes for any reason other than physical damage from an insurable cause is not covered. Damage due to phylloxera is also not covered.
There are sign up deadlines with all crop insurance policies. This is the same for Grape crop insurance as well. The deadline for all states other than California is November 20th. For California the deadline to sign up is January 31st. Premiums are not due at the time of sign-up; premium billing is done in August.
Agricultural Risk Management is a national crop insurance agency with offices in Florida, California and Pennsylvania. 2022 will be our 20th year of selling crop insurance.