The Price of a Good Nights Sleep: Why AGR-Lite insurance is in the Gardens of Eagan farm budget
By Atina Diffley

This article was first printed in the january - February 2008 issue of the Organic Broadcaster, published by the Midwest Organic and Sustainable Education Service.

Often farmers joke about the “gamble” involved with their operations. Perhaps you’ve heard the one about the farmer who won the lottery and farmed until it was gone or the farmer who had a gambling addiction – his own farm. But, it’s not a comic story that farmers deal with an endless plethora of risks and perils that far too often snag farmers on the hook of financially instability.

The risk is often more complex than a single event such as a drought or other major event, either natural or manmade. It is often subtle and quiet, an everyday situation that grows in layers as the operation responds to external forces. No two people or farm situations carry exactly the same types or amount of risk. And no two people or farming operations possess the same capacity to tolerate nor the ability to manage and mitigate risk.

Many farmers and their families aren’t even aware of the magnitude of the risk they face. As farmers gain deeper understanding of their operations and as they mature and “get used” to risk, they often discover they have been carrying huge risk for many years and that risk has become a stress with prospects even more damaging than the risk itself.  

A number of years ago in our annual winter farm planning meeting the concept of risk management planning came to the forefront of our attention. We printed out a spreadsheet and wrote all the risks we face on one side of the paper and in the next column wrote what farm systems we use or could develop to mitigate the risk.

While this was a very valuable planning tool, and we were able to drastically reduce the likelihood of disaster with good farm system planning, there were still major risk factors we knew our farm would always be vulnerable to. A cold wet spring delaying planting, the dreaded hail storm in late July, untimely frost; we wished we could buy adequate crop insurance. But no such product existed for organic vegetable producers.

Without reliable insurance we wrote frugal budgets knowing that it was very possible we could get caught with all our spring start-up money out in the field and no crop income to repay it. The more established our farm became, the less willing we were to take the risk of losing what we’d built up. The stress of risk had, over time, become a risk of its own.

Introducing AGR-Lite
Starting with the 2007 growing season, in Minnesota and Wisconsin, most farm-raised crops, animals and animal product are now eligible for Adjusted Gross Revenue-Lite (AGR-Lite), a whole-farm revenue protection plan of insurance. The plan provides protection insurance against loss of revenue due to any unavoidable natural peril or market fluctuation that causes a loss of revenue.

Imagine: despite the perils of the market and weather, being able to write a farm budget with a guaranteed gross income! Most businesses would love to be able to guarantee their income by the purchasing of insurance.
 
The AGR-Lite concept:

• Uses a producer’s five-year historical farm average revenue reported on the IRS 1040 Schedule F tax form, other IRS farm tax forms and annual farm report as a base to provide a level of guaranteed revenue.
• Provides insurance coverage for multiple agricultural commodities in one insurance product; and
• Establishes revenue as a common denominator for the insurance of all agricultural commodities.

The government will pay a portion of the premium for the AGR-Lite policy that equals 48%, 55% or 59% depending on the level of coverage chosen. Sales closing date is March 15th. Cancellation date for all existing policies is January 31st.

When this information first crossed my desk I thought it looked too good to be true. After 34 years of farming we could suddenly have a guaranteed gross income! One disaster in 25 years would pay our premiums for those 25 years. After a quick study of our farm’s financial history I decided I was on the winning side of those odds. Then I added the economic stability and budget-planning tool that guaranteed gross revenue would provide the farm and the increasingly risky weather extremes that global climate change has brought and suddenly it didn’t look too expensive, I was signing the policy paper.

For us having AGR-Lite insurance means that we can now write a very accurate farm budget including our own salary. The insurance premium goes into the budget right along with all the other farm expenses. We know how much money we can spend on labor, inputs and capitalization projects based on knowing that our farm income will at a minimum be the amount of coverage we purchased. This revolutionized our farm planning and management and drastically reduced our financial risks. Questions like, can we afford to purchase a desired piece of equipment, became easy to answer. We no longer need to tiptoe through the majority of the season until the books finally say we’ve successfully gotten through the danger zone, only to go back on tiptoe again a month later as the money flow reverses out for the next seasons start-up.

To be eligible for AGR-Lite coverage, a producer must:

• Be a U.S. citizen or resident;
• File a calendar year or fiscal year farm tax return;
• Produce agricultural commodities primarily in counties where AGR-Lite is available. (Includes income from contiguous counties);
• Have liability not exceeding $1 million (less than $2,051,282 in approved gross income);
• Have had the same tax entity for 7 years (filed 5 consecutive years of Schedule F tax forms, plus previous year and insurance year) unless a change in tax entity is reviewed and approved by the insurance provider;
• Have no more than 50 percent of total revenue from commodities purchased for resale; and
• Have no more than 83.35 percent of total revenue from potatoes.

For 2008 AGR-Lite is available in Alabama, Alaska, (selected counties), Arizona, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Kansas, Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York (selected counties), North Carolina, Oregon, Pennsylvania (except Philadelphia County), Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

If AGR-Lite is not offered in your state and you would like it to be, contact your regional Risk Management Agency (RMA)/ Send them a letter telling them about your farm operation and why you would like to be able to purchase AGR-Lite in your state. (And organize other farmers in you state to do the same).

Martin and I would have made a great AGR-Lite insurance commercial this past growing season in late-July when the dreaded, heart in the stomach, ping-ping of hail on metal woke us up in the middle of the night. We know from first hand experience how many years it can take to recoup hailstorm losses. It took us twelve years to pay back the start-up loan from our first hailstorm disaster. (1976 hail paid off in 1988) Ironically, we finally paid it off with 1988 drought disaster relief.

We both bolted upright in bed – saying, OH NO! HAIL!  @%#&#*

Then I said, “We bought the AGR-Lite”.

Martin said, “Hey, maybe we’ll get completely hailed out and can spend August in Montana!”

I replied, “Oh yeah, let’s hope!”

And we went right back to sleep.

The hail stopped. We spent August in the fields and pack sheds, not the mountains. Maybe next time. Despite a very challenging season, 2007 ended as our best season yet. In December, when it was time to write the 2007 premium check, I sat back for one moment and asked myself, “We didn’t use this insurance in 2007, we made out just fine on our own. Do we need to buy it again for 08?”

The answer was a definite, “YES”.

For more information contact your regional Risk Management Agency Office.

Learn more about Crop Insurance.

Atina Diffley farms at the Gardens of Eagan, a fifth generation family farm, just south of the Twin Cities in MN. For news about exciting changes at GOE, see their webpage at  www.gardensofeagan.com.