It shifts unavoidable production risks to an insurance company for the payment of a fixed amount of premium per acre. Over $322 million has been paid for crop losses in Pennsylvania since 1981 ($252 million in the past ten years).
Participation in the crop insurance program in Pennsylvania has increased dramatically since the 1990's, with a large increase in acreage and coverage, providing protection from losses due to weather extremes and market variability. Over 1.1 million acres are covered by crop insurance with insurance protection of almost $400 million. A minimum level of crop insurance, called CAT insurance, is available to all farmers regardless of size at no premium cost (all premiums are paid by the federal government). Higher levels of crop insurance (buy-up protection) are also federally subsidized, with farmers nationwide paying only 33 to 62 percent of the actual cost of the insurance (depending on the level of coverage selected). Because of the high levels of subsidy, the amount paid to Pennsylvania farmers for crop losses has exceeded the amount they paid in premiums in 19 out of the past 20 years. During that time period, Pennsylvania farmers with crop insurance have received an average of $2.73 for crop losses for every $1 they have paid in premiums.
Crop insurance coverage is available for certified organic acreage, transitional acreage, and buffer zones. When reporting acreage, you must have written certification for your organic and transitional acreage and records from a certifying agency of the location of your organic production. Organic price elections or insurance dollar amounts of coverage are set by USDA-Risk Management Agency every crop year. For 2011, organic prices for crop insurance have been set at $10.75/bu. for corn, $24.20/bu. for soybean, and $87/ton for processing tomatoes. Organic corn and soybeans can be protected with either of the two revenue plans or the yield coverage plan. Crop insurance is also available for many organically grown crops at non-organic prices without a premium surcharge. Premiums may be adjusted to recognize any additional risk associated with covering organic crop acreage. Coverage for organic crops sometimes requires use of a written agreement; check with a crop insurance agent for more information.
Another option for organic producers is adjusted gross revenue insurance (AGR or AGR-Lite) which insures the revenue of your entire farm (not individual crops) by guaranteeing a percentage of your average gross farm revenue. AGR insurance provides protection for farms with multiple crops, especially for growers with specialty markets or crops that do not have standard crop insurance coverage. It provides protection for all crops and livestock revenues and is available to farmers statewide (except Philadelphia County).
AGR insurance uses information from the past five consecutive years of your Schedule F tax forms to calculate the policy revenue guarantee. Depending on the number of commodities grown, you have the choice of three coverage levels (65, 75, and 80 percent) and two payment rates (75 and 90 percent). This type of coverage is of particular value to growers who sell in specialty markets and receive premium prices for their products.
Although AGR plans are good options for many high-value crop producers, it may not cover your losses if you are purchasing crops from other farmers for resale. This is a potential problem in direct marketing situations if you make up a shortfall in production by purchasing crops from other sources. Because AGR and AGR-Lite are revenue policies (not profitability policies) you would not have the basis for a claim if your revenues are at or above the coverage level you selected (although in this situation your costs would also be higher than normal).
For more information on crop insurance and how it can protect the cash flow on your farm, visit the Penn State Extension Crop Insurance Education website or contact a crop insurance agent.