Crop Insurance and COVID-19

The current COVID-19 pandemic has already disrupted production and marketing of agricultural goods globally. From losses in global commodities markets to the closing of restaurants and farmers markets, the disruptions are affecting all scales and markets of agriculture. For farmers with crop insurance, this situation poses a series of specific challenges, and farmers should take the time to understand the effects on their crop insurance coverage before making significant changes in production or harvest. Information on specific crop insurance plans is available here. As always, it is important that farmers are in communication with their crop insurance provider as quickly as possible.

It is critical that producers understand eligible causes of loss in crop insurance when making difficult production decisions. If the farmer has production-based crop insurance, like Actual Production History (APH) coverage, there is no coverage for losses based on lost revenue.

Revenue-based Crop Insurance Coverage

In revenue coverage, such as Actual Revenue History (ARH) or Whole Farm Revenue Protection (WFRP), revenue losses must be caused by either loss of production due to natural disasters or reduction of market price in order to be covered. The loss of markets is not an insurable loss. Inability to obtain labor to plant or harvest is not an insurable loss. Losses must be caused by either production losses due to natural disasters or reduction in market price.

If a farmer has revenue crop insurance and they lose a market, in order for that loss to be covered they must document the price for the product after the loss of the market. For instance, if a farmer has WFRP and loses sales because the restaurants that they sell to are closed, they must harvest and sell that product into other markets in order for the difference in revenue caused by the price loss to be covered. If they do not document the price or sell the product, the revenue losses are not covered.

Production must be harvested and sold unless harvest is not “feasible.” The line on feasibility is somewhat fuzzy, but certainly harvest is not feasible if the market price is less than the cost to harvest and bring product to market. But to establish feasibility, the prices and costs must be documented. They must establish what someone, somewhere would pay for the product and the costs of getting it there.

If a farmer is unable to harvest because they are unable to obtain labor through their normal channels, they must document how much it would cost to find existing labor as part of the assessment of feasibility. If production is not harvested, the loss of revenue is only covered if the documented cost of harvest and bringing it to market is greater than the value of the product in the marketplace.

How Changes in Anticipated Revenue Impact the Level of Coverage

When WFRP coverage is based on multiple production cycles in a single insurance year, the producer must also maintain production that satisfies the anticipated income in their application, based on the prices established in their farm plan. The amount of revenue covered, referred to as approved revenue, is established by either the revenue history or anticipated revenue from the farm plan, whichever is lower. Farmers often have approved revenue that is lower than their anticipated revenue because of the revenue history. If the producer chooses to discontinue production because of a loss of markets, it could lower the anticipated revenue below the revenue history and cause a reduction in coverage.

For example, a farmer with WFRP has anticipated revenue of $150,000 in mixed vegetable production, split evenly between early, mid and late-season crops. Their 5-year average gross revenue is $125,000, which then becomes the approved revenue for coverage. With 80% coverage, their insurance would cover losses below $100,000 in gross revenue. Because of the loss of restaurant markets and reduced sales at the farmers’ market associated with the COVID-19 epidemic, the producer decides to cut their mid and late-season crop production in half. Based on their documented historic prices, that reduction would drop their expected revenue to $100,000. Because the reduction was their decision and was not caused by a natural disaster, their anticipated revenue would then be lower than the historical revenue and their approved revenue would be reduced to that $100,000. At 80%, their coverage would be reduced to $80,000 instead of the original $100,000. That farmer would need to include that loss of coverage in their production decisions.

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As is always true, it is important for farmers to communicate with their crop insurance providers as they navigate this difficult year. We know that many farmers are facing very difficult decisions this season. If producers are in need of assistance in thinking through their financial options, please call the RAFI farmer hotline at 866-586-6746.

This piece was written by Scott Marlow, a consultant of RAFI-USA.