Between federal government jargon, numbers and figures, crop insurance can be a difficult topic to digest. However, the most important question to ask is whether it’s right for you and your farm.
“Crop insurance is somewhat similar to other forms of insurance,” said Robert Connors, Director at the Raleigh Regional Risk Management Agency Office at the USDA. “A farmer definitely must pay a copay and as a general rule, the insurance policy pays within 30 days.”
Think of it as a car insurance deductible and not a health insurance copay. The farmer is covered for up to 85 percent of the value of their crop, but 100 percent is currently not available, according to Alexander Sereno, Acting Deputy Director at the USDA Raleigh Regional Risk Management Agency Office.
There are two types of crop insurance: multi-peril crop insurance and crop-hail policies. According to the National Crop Insurance Services (NCIS) website, the U.S. multi-peril crop insurance is a risk management tool that producers purchase to protect against the loss of their crops due to natural disasters such as hail, drought, freezes, floods, fire, insects, disease, and wildlife, or the loss of revenue due to a decline in price.
Crop-Hail policies are sold by private insurers to farmers and regulated by individual state insurance departments. This type of crop insurance is not part of the Federal Crop Insurance Program.
“Unless you don’t pay your premium, you cannot be disqualified,” added Sereno. “Everyone has the right to participate and they cannot be discriminated against.”
In the United States, 89 percent of farmland is covered by crop insurance, according to Connors. However, New England is under-participating and different states have different quantities and policies sold.
The USDA and the Risk Management Agency are working towards improving crop insurance participation in those New England states, according to Sereno.
For example, forage production in New Hampshire had two policies sold in 2015 while forage production in New York State had 39 policies sold with 4018 acres.
The premium also varies from crop to crop based on a farmers’ high yields. With lower yields, their premium goes down.
“Most crop insurance policies are done by commodity,” Sereno said. “They can be anywhere from apples, nursery, potatoes and more. There are more than 100 different crops that have policies and are offered where they’re traditionally grown.”
If a farmer is looking for a particular crop where insurance isn’t offered, they can submit a request to their regional office that can potentially grant an exception.
Where do I sign up?
A farmer can sign up with an agent, similarly to auto insurance. The turnaround time for processing could be as quick as an instant or as long as a week, but a farmer won’t be turned down.
“For the most part, it’s a growing program,” Sereno said. “It’s being pushed forward as the main part of the farm safety net. Producers buy into it and it’s a better solution than government done in the past.”
According to the USDA, the farm safety net is a set of farm programs and other assistance that provides farmers and ranchers with protection against risks such as lost income, limited access to credit or devastation from natural disasters.
Crop insurance also benefit taxpayers. Due to the nature of farming, there’s going to be droughts, disease and other devastating situations. Having coverage provides stability, Connors said. “The government pushes it so we want every farmer to have crop insurance,” he noted.
So, is crop insurance essential?
“Absolutely!” Connors said. “In the safety net program before this one, if a farmer got hit by a drought, hurricane, insect or disease, it wiped out his crop. He can’t buy materials like fertilizer and seeds and can’t pay the bank back. It’s a losing thing.”
When crops were wiped out, families ended up losing their farms. A strong insurance plan provides a security blanket for not only the crop, but a farmer’s financial standing.
“Banks want to see that a farmer has crop insurance before they approve loans, for example,” Sereno said. “Crop insurance is collateral for the loans and banks look at that. The operational expenses are covered that way so farmers won’t lose their homes.
“There’s a high participation ratio because most people realize that it’s a business necessity,” Sereno continued. “In general, it’s pretty rare that farmers get rid of their crop insurance.”