An Introduction to Risk Management for Diversified Producers in Central Appalachia Jennifer Lamb Fellow Appalachian Sustainable Development MS Agricultural and Applied Economics Virginia Tech Virginia Tech Beginning Farmer and Rancher Coalition Webinar Series, June 5, 2013
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An Introduction to Risk Management for Diversified Producers in Central Appalachia Jennifer Lamb Fellow Appalachian Sustainable Development MS Agricultural.
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An Introduction to Risk Management for Diversified Producers in Central Appalachia
Jennifer LambFellowAppalachian Sustainable Development MS Agricultural and Applied EconomicsVirginia Tech
Virginia Tech Beginning Farmer and Rancher Coalition Webinar Series, June 5, 2013
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
• 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!
• Protects against yield loss • Not available in many SWVA counties• Check here: http://www.rma.usda.gov/tools/ • Go to actuarial information browser, tools,
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
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
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 NAPPolicy 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
0 NAP 50/55
AGR 65/75
AGR 65/90
AGR 75/75
AGR 75/90
AGR 80/75
AGR 80/90
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
0 935 0 0 840 10084395 5274
69,980 70,165 69,230 69,086 69,374 69,259
72,127 72,562
Comparing Revenues Between NAP and AGR Lite at Different Coverage Levels
Flood for AH Grower
Total revenue Loss PaymentProducer Premium
Coverage Options (Percent of Revenue Insured/Payment Rate)
Dolla
rs
Choosing Your Coverage
Choosing Your Coverage
0 NAP 50/55
AGR 65/75
AGR 65/90
AGR 75/75
AGR 75/90
AGR 80/75
AGR 80/90
0
20000
40000
60000
80000
100000
120000
0 750 750 894 1446 1729 2248 26920 0
9090 1090816200
19440 1975523706
49,500 48,750
57,84059,514
64,25467,211 67,007
70,514
Comparing Revenues Between NAP and AGR Lite at Different Coverage Levels
Pest Infestation for AH Grower
Total revenue Loss PaymentProducer Premium
Coverage Options (Percent of Revenue insured/payment rate)
Dolla
rs
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 NAPPolicy 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 = $15,400Pie PumpkinsCover 25% of loss at 55% level= $5,156GourdsCover 25% of loss at 55% level =$ 3093.75Total = $23,650
$70,416
Less Premium
-$750 $8320
Net $22,900 $62,096
Total Income
$143,700 $182,896
0 NAP 50/55
AGR 65/75
AGR 65/90
AGR 75/75
AGR 75/90
AGR 80/75
AGR 80/90
0
50000
100000
150000
200000
250000
172,800 172,050 170,483 170,025
178,711 179,720185,101
188,096
Comparing Revenues Between NAP and AGR Lite at Different Coverage Levels
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
• Sign up in your county office• Locate your county office:http://offices.sc.egov.usda.gov/locator/app?service=page/CountyMap&state=VA2&stateName=Western%20Virginia
Need crop insurance or NAP to qualify for federal farm disaster assistance