By: Trevor Troyer, VP, Agricultural Risk Management
That is a question I hear a lot. For some it makes sense to purchase crop insurance, depending on the growing risks they are dealing with. For others it might not be as good a fit for them. Often times large growing operations may “self-insure” as they have reserves set aside for the upcoming season. For some this is not an option as a large portion of the previous year’s income is being re-invested into the new crop. If they don’t make a crop and sell it this year, they might not have enough money for next year.
How does this apply to a vineyard? Perennials are very different from traditional row crops or vegetable crops. But a lot of the risks are very much the same. Drought, freeze, wildlife damage, fire/smoke and the list goes on. From what I see the risks can actually be more with perennials. It doesn’t matter if it’s an apple orchard, avocado grove or vineyard, your investment is subject to the elements all year round. Things may happen after you harvest that might affect the following year’s crop production.
Risks are different depending on growing regions throughout the US. You might have grower in Chautauqua or Erie County in New York worried about frost/freeze and then a grower in Sonoma County in California worried about smoke taint. Regional issues play a large part in decisions on whether or not crop insurance is right for you. And then how much coverage is needed for the risks involved in making a good profitable crop.
With rising production costs this makes decisions on crop insurance even more tricky. Chemical prices are rising, fertilizer is at an all-time high shipping and labor costs are also up. Can you afford to purchase crop insurance? Or can you afford not to have it with how much you have invested now? These are questions that have to be asked. I have had growers ask about reducing their coverage as these other costs go up. You then have to ask how much of a loss can you sustain and not have it affect your ability to keep growing. Can you lose 20% of your tonnage? What about 40%? That is something, you as a grower, have to think about.
Crop insurance is designed to help a grower have enough money to be able to produce a crop the following year. It is not set up to replace profits lost from an insurable cause. I have had winery owners complain to me that it doesn’t cover the cost of how much their wine is worth. While I can totally understand this, it is the growing costs that are being insured against loss. Crop insurance does not cover the production costs of making wine or juice etc. Only Causes of Loss that are nature related are being insured against. It doesn’t cover the inability of a grower to sell his grapes or broken contracts with wineries or processors.
Here are the Causes of Loss for Grapes out of a National Fact Sheet from the USDA:
Causes of Loss
You are protected against the following:
• Adverse weather conditions, including natural perils such as hail, frost, freeze, wind, drought, and excess precipitation.
• Failure of the irrigation water supply, if caused by an insured peril during the insurance period.
• Insects and plant disease, except for insufficient or improper application of pest or disease control measures.
• Volcanic eruption.
Additionally, we will not insure against:
• Phylloxera, regardless of cause.
• Inability to market the grapes for any reason other than actual physical damage for an insurable cause of loss.
Crop insurance is partially subsidized through the USDA. Premiums are subsidized from 100% at Catastrophic Coverage (there is an administrative fee though) to 38% depending on coverage level chosen. A lot of growers “buy-up” coverage from 65% to 80% and their premium subsidy is around 50% to 60%. In my opinion it has to be subsidized, as crop insurance is more likely to pay out a claim than any other type of insurance. Premiums are more expensive than many other types of insurance. You do not hear too often of people that have had an auto accident 3 years out of 5 with a claim paid each of those years. But that being said, I have seen vineyards have payable losses 3 out of 5 years. No one wants to have a loss but they do unfortunately happen.
Hopefully you don’t have a lot situations where you have a loss. But as a grower you need to assess your risks. These risks/concerns are more than just the causes of loss mentioned above. Though these have to be taken into consideration for the growing region your vineyard is located in. Here are some other questions to ask yourself. What are your break-even costs? Do you know your cost of
production with projected inflation? Have you evaluated the risk of a severe crop loss? What varieties are planted in your vineyard? Some types of Vitis vinifera are more susceptible to weather issues than others. Are you able to repay current operating loans without crop insurance in the event of a loss?
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 state. Crop insurance may not be available in all counties in these states.
Our job as a crop insurance agent or crop insurance agency is not to convince you that you need crop insurance. It is to help you make an educated decision, based on your risks, to whether or not you need crop insurance. And then, if it is a good fit to mitigate your risks, to determine how much coverage is needed.