Crop Yield and Revenue Insurance
Producers of specific crops can purchase insurance policies at a
subsidized rate, under Federal crop insurance programs. These insurance
policies make indemnity payments to producers based on current losses
related to either below-average yields (crop yield insurance) or
below-average revenue (revenue insurance).
Policies are sold through private insurance companies, but the
USDA's Risk Management Agency (RMA) subsidizes the insurance premiums,
subsidizes a portion of the companies' administrative and operating
expenses, and shares underwriting gains and losses with the companies
under the Standard Reinsurance Agreement. Premium subsidy rates
were raised under the Agricultural Risk Protection Act of 2000,
so that most farmers pay around 40 to 50 percent of the premiums.
Insurance is widely available, though coverage is not available
for all crops in all areas, and all types of insurance are not available
for all crops. Farmers sign up for insurance prior to planting,
but usually pay premiums after harvest.
Several types of crop yield and revenue insurance are available.
Each has some unique features.
Yield Insurance Plans
- APH (Actual Production History) coverage is the oldest and most
widely available crop insurance product. It protects farmers against
yield losses due to natural causes such as drought, excessive
moisture, hail, wind, frost, insects, and disease.
Yield coverage levels are based on a producer's expected yield,
which is calculated from the farm's actual production history
(average yields over the last 4 to 10 years). The farmer selects
a yield coverage level, ranging from 50 to 75 percent of average
yield (up to 85 percent in some areas), and an indemnity price,
ranging from 55 to 100 percent of the crop price established annually
by RMA. If the harvested yield is less than the insured yield
(i.e., less than the yield coverage level), the farmer receives
an indemnity based on the difference between the actual yield
and the insured yield. The total indemnity equals this yield shortfall
times the indemnity price times acres insured.
- Catastrophic (CAT) coverage provides a lower level of coverage
on yield losses at a low cost to producers. It pays indemnities
at a rate of 55 percent of the established price of the commodity
when farm yield losses are more than 50 percent. CAT premiums
are paid by RMA, but producers must pay a $100 administrative
fee for each crop insured. CAT coverage is not available on all
types of policies. Yield coverage above the CAT level is often
referred to as "buy-up."
- Group Risk Plan (GRP) policies use county yields as the basis
for determining a loss. When the county yield for the insured
crop falls below the trigger level chosen by the farmer, an indemnity
is paid. Yield coverage is available for up to 90 percent of the
expected county yield. GRP's premiums may be lower than those
for individual insurance, but an individual farmer's crop loss
may not be completely covered if the county yield does not suffer
a similar level of loss. This type of insurance is best suited
for farmers whose crop losses typically follow the county pattern.
- Dollar Plan coverage pays for both quantity and quality yield
losses and is limited to some high-value crops (e.g., fresh market
tomatoes and strawberries). It guarantees a dollar amount per
acre rather than a particular yield level. Both CAT and buy-up
coverage are available.
Revenue Insurance Plans
- Crop Revenue Coverage (CRC) provides protection against gross
revenue (i.e., price times yield) falling below some guaranteed
level. Guaranteed revenue is equal to the farmer's elected coverage
level (50 to 75 percent), times the APH yield, times the higher
of (a) the base market price, which is an average of the harvest-time
futures price for the month of February prior to planting; or
(b) the month-long-average-harvest market price for the last month
of the contract.
CRC provides higher coverage in years when prices rise after
planting. When a farmer's actual revenue (calculated as the actual
yield times the harvest market price) is below the guaranteed
revenue, CRC pays an indemnity equal to the difference between
those two amounts.
- Revenue Assurance (RA) coverage is similar to CRC, with two
differences.
- Farmers can choose between RA's "base price option,"
where the revenue guarantee is determined using only the preplanting
price; or the "harvest price option," where the revenue
guarantee may increase up to harvest time, just like CRC. The
harvest price option carries a higher premium.
- Revenue coverage under RA is always determined using 100 percent
of the base price, whereas CRC gives farmers the option of using
95 percent of the base price in exchange for a lower premium.
- Income Protection (IP) provides protection similar to RA with
the base price option but requires producers to use "enterprise
units." This means that the policyholder must insure all
acreage for one crop in a county under a single policy (rather
than having separate policies for different landlords, land sections,
etc.). Premiums are lower, but IP requires that losses be across
a wider area before an indemnity is paid.
- Group Risk Income Protection (GRIP) is a revenue insurance plan
that uses county yields instead of farm yields when calculating
revenue coverage levels and actual revenue. Farmers may select
revenue coverage levels from 70 to 90 percent of expected county
revenue, where county revenue is equal to the historic county
yield times the relevant futures price averaged across 5 days
prior to planting. Actual county revenue is calculated as the
actual county yield times a month-long average of the nearby futures
price at harvest time. GRIP pays indemnities only when the average
county revenue for the insured crop falls below the revenue chosen
by the farmer.
- Adjusted Gross Revenue (AGR) coverage insures the revenue of
the entire farm rather than an individual crop by guaranteeing
a percentage of average gross farm revenue, including a small
amount of livestock revenue. The plan uses information from a
producer's Schedule F tax forms to calculate the policy revenue
guarantee. Currently, AGR is still a pilot program that is only
available in selected areas.
For Specific Program Details...
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