Introduction to Crop Insurance
by Jody Padgham

This article was first printed in the May - June 2003 issue of the Organic Broadcaster, published by the Midwest Organic and Sustainable Education Service.

Organic crop farmers have historically been left out in the cold as far as crop insurance coverage has been concerned. Laurie Fredericks and Cindy Cruea, USDA Risk Management Specialists, came to the Upper Midwest Organic Farming Conference recently to explain how the USDA-Risk Management Agency (RMA) is now accommodating organic producers in government risk management programs, including the opening of Federal Crop Insurance to organic crops.

Fredericks and Cruea, from the USDA Risk Management office in St Paul, MN, explained that the USDA-RMA is the overseer of the Federal Crop Insurance Program. RMA handles the policy and oversight of the program, but insurance policies are actually sold by private insurance agents. All sales, service and loss adjustments take place with the private agents. RMA shares the risk with the private companies. Area Farm Service Agency offices have lists of insurance agents that individuals can choose to buy crop insurance through.

Risk Management in MN, WI and IA is covered through the St Paul regional office. There are nine other regional offices around the US.

Federal Crop Insurance protects a farmer against production or revenue losses when a particular, insured crop does not meet a pre-set production guarantee. Covered losses include adverse weather (frost, heat, drought, hail), fire, insects and disease, wildlife damage, earthquake or volcanic eruption and failure of irrigation water supply. Non-covered losses include negligence or wrong-doing, poor management and farming practices, failure or breakdown of irrigation equipment or facilities and chemical drift.

Organic producers need to apply for Federal Crop Insurance using a "Written Agreement", which is a request for exception. These Agreements are traditionally used to cover crops outside of their specific qualified area, but now also are written for organic crops. If only general coverage is taken on an organic crop, the argument will be made that chemical treatment could have been used to solve an insect or disease problem to reduce loss. The specific wording in RMA materials states: "If a Written Agreement is not requested for organic farming practices, loss adjustment procedures for conventionally grown crops will be applicable. Appraisals for uninsured causes of loss will be applied when conventional farming practices would have prevented damage due to insects, disease or weeds." The use of a Written Agreement supersedes the status quo and acknowledges the unique practices involved in organic production.

In WI, MN and IA last year there were 481 policies written for organic crops. See table A for a listing of the crops those policies covered.

To write a Written Agreement, a producer must first find a crop insurance agent they trust. That agent will fill out a special form, and work with RMA to write the agreement.

Not all crops are covered by Federal Crop Insurance. Crops are approved for particular states and counties. If a crop is not approved in your area but is in another, you may write a Written Agreement for that crop in your area. If a crop is not approved for insurance anywhere in the US, the Federal program will not write insurance for it.

There are some crops that are in the process of being approved, and undergoing three year "pilot programs" in a particular state. If a crop passes the pilot phase, it will be available to other producers for coverage under a Written Agreement. To initiate a pilot program on a crop, approval has to be given by the board of the RMA.

Coverage, and thus insurance premiums, are based on average yield, numbers of acres per crop and desired % reimbursement. To figure the terms under which a particular crop can be covered, two situations can be relevant. In the first, a producer reports production for each unit of production (field/crop) for up to 10 continuous years. An average of the data is the base yield that will be used in figuring insurance coverage. If 10 years of data are not available, a T-Yield based on the historic county average will be used instead. New farmers can claim 100% of the T-Yield, existing farmers can only claim 65% (an incentive for real records to come into the office). Organic farms are not segregated or treated uniquely as far as T-Yield averages are concerned.

Crop insurance must be taken out at very specific times of the year. Once taken out, the policy is continuous unless canceled by a given year's sales closing date (November 20 for Apples and Cranberries, March 15th for barley, corn, dry beans, green peas, oats, potatoes, soybeans, sweet corn, spring wheat.) Closing dates are specific to each area, and should be confirmed with an agent.

To date, there is no reimbursement premium for organic crop production. Policy payments are based solely on yield reduction, acreage affected and average conventional commodity price. At the session there were many concerns and questions about this policy. It was explained that the USDA-ERS (Economic Research Service) is collecting data on prices for organic crops, but has not collected enough data to have price averages for organic crops. So, for now, organic producers will be compensated for the loss of yield and acreage, but at only average conventional price.

There is hope on the horizon for this situation, in the form of a pilot program being undertaken in Pennsylvania, called the "Adjusted Gross Revenue Lite" Program. In this program, insurance coverage is based on the 5 year average farm revenue listed on IRS Schedule F 1040. At this point only a pilot, this program will hopefully become available to producers around the US within five years. Participants in this workshop were frustrated that a program such at this which could take into account organic premiums was not yet available, but heartened that it is a possibility down the road.

Also a disappointment to participants was the news that Federal Crop Insurance does not cover GMO contamination. "Any loss of production or value due to contamination of a prohibited substance (intentional or unintentional) or contamination from a genetically modified organism with certified organic, transitional or buffer zone acreage is not insured." Fredericks explained that Congress wrote the Act governing Federal Crop Insurance, and it was their decision to not include chemical drift or GMO contamination. Any change in this policy would have to be made by Congress itself, so pressure need be put on our Congress people rather than the RMA to bring this policy more in line with the needs of organic farmers.

Fredericks and Cruea end their presentation by acknowledging that the Federal Crops Insurance Program's suitability for organic farmers is less than ideal, but that it is moving in the right direction. They recommend that individuals in each of the states contact area RMA staff to further the conversation about organic farm crop insurance needs and concerns. For more information or to find contact info for your area, go to www.rma.usda.gov or contact the regional office at 651-290-3304. A very complete resource, The National Ag Risk Library, is online at www.agrisk.umn.edu/ Listed on this website are numerous 1-2 page documents explaining different risk management options for crop and livestock farmers.

Learn more about Crop Insurance.

Jody Padgham has been with MOSES since 2002. She is the organization's Financial Manager, the editor of the Organic Broadcaster newspaper and co-coordinator of the Organic University. Jody raises poultry and sheep organically on a 60-acre farm in west-central Wisconsin.