crop insurance considerations

1. 1 Crop Insurance Considerations Importance of Crop Insurance

2. 2

3. 3 Project Overview Funding for this project was provided to National Crop Insurance Services (NCIS) through a competitively awarded Commodity Partnership Agreement from the USDA Risk Management Agency. NCIS is a not-for-profit national trade association located in Overland Park, Kansas. This workshop is open to all interested persons. The USDA prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital status.

4. 4 Workshop Overview�Organization The purpose of this workshop is to address the critical farm - risk management issues impacting US soybean producers threatened by Asian Soybean Rust (ASR). Organization of the workshop is as follows: ASR � Background and Fundamentals Detection and Agronomic Control Alternatives Farm and Risk Management Considerations Personalized Risk Management Strategies

5. 5 2001 - 2005 US SOYBEAN ACRES

6. 6 2001 - 2005 INSURED US SOYBEAN ACRES

7. 7 2001-2005 UNITED STATES SOYBEAN LIABILITY

8. 8 2001 - 2005 UNITED STATES- PREMIUM PER SOYBEAN ACRE

9. 9 2001 - 2005 UNITED STATES- LIABILITY PER SOYBEAN ACRE

10. 10 1980-2000 UNITED STATES- SOYBEAN LOSS RATIO

11. 11 2000 - 2004 UNITED STATES SOYBEAN - PREMIUMS AND LOSS

12. 12 2001 - 2005 UNITED STATES SOYBEANS PLAN OF INSURANCE BY POLICIES SOLD

13. 13 2001 -2005 UNITED STATES SOYBEANS COVERAGE LEVELS BY POLICIES EARNING PREMIUMS

14. 14 2001 - 2005 ARKANSASSOYBEAN ACRES

15. 15 2001 - 2005 ARKANSAS- INSURED SOYBEAN ACRES

16. 16 2001-2005 ARKANSAS SOYBEAN LIABILITY

17. 17 2001 - 2005 ARKANSAS- PREMIUM PER SOYBEAN ACRE

18. 18 2001 - 2005 ARKANSAS- LIABILITY PER SOYBEAN ACRE

19. 19 2001 - 2005 ARKANSAS SOYBEAN - PREMIUMS AND LOSS

20. 20 1980-2000 ARKANSAS- SOYBEAN LOSS RATIO

21. 21 2001 - 2005 ARKANSAS SOYBEANS PLAN OF INSURANCE BY POLICIES SOLD

22. 22 2001 -2005 ARKANSAS SOYBEANS COVERAGE LEVELS BY POLICIES EARNING PREMIUMS

23. 23 Crop Insurance Considerations �Crop Insurance � 101�

24. 24 Source: www.rma.usda.gov/policies/cycle/insurance_cycle.htmRMA Insurance Cycle Policy Renewal/Change Options/Application Sales Closing/Cancellation/Termination Dates Acceptance Insurance Attaches Acreage Reports Summary of Coverage Premium Billing Notice of Damage or Loss Inspection Indemnity Claim Contract Change Date

25. 25 Policy Renewal/Change Options/Application The Special Provisions of Insurance list program calendar dates, and general and special statements which may further define, limit, or modify coverage

26. 26 Insurance Attaches For annual crops, insurance attaches annually when planting begins on the insurance unit Crop must be planted on or before crop�s published final planting date unless late or prevented planting provisions apply If prevented planting provisions apply, and crop cannot be timely planted due to causes specified in the crop provisions, crop acreage may be ineligible for payment

27. 27 Acreage Reports Policyholder must annually report for each insured crop in the county in detail information about the crop Number of insurable and uninsurable acres planted or prevented Date acreage planted Share in the crop Acreage location Farming practices used Types or varieties planted

28. 28 Notice of Damage or Loss Filed by policyholder within 72 hours of initial discovery of damage or loss but not later than 15 days after the calendar date for the end of the insurance period unless stated in individual crop policy

29. 29 Inspection If necessary, inspection made after insurance provider receives written notice of damage or loss Responsibility of policyholder to establish the time, location, cause and amount of any loss

30. 30 Indemnity Claim Indemnity check and summary of indemnity payment issued after the claim for indemnity is processed

31. 31 Soybean Coverage Dates

32. 32 Crop Insurance Plan Comparison Multiple Peril Crop Insurance (MPCI - APH) Crop Revenue Coverage (CRC) Revenue Assurance (RA) Group Risk Plan (GRP) Group Risk Income Protection (GRIP) Income Protection (IP)

33. 33 Soybean Coverage Availability

34. 34 Soybean Coverage Availability

35. 35 Multiple Peril Crop Insurance (MPCI) Provides protection against loss in yield due to nearly all natural disasters Guarantees a yield based on individual producer�s Actual Production History (APH) If production to count is less than the yield guarantee, the insured will be paid a loss

36. 36 Crop Revenue Coverage (CRC) Guarantees an amount of revenue (based on the individual producer�s actual production history {APH} X commodity price) Final guarantee based on the greater of the spring-time generated price (base price) or the harvest-time generated price (harvest price) Guarantee may increase, but premium will not CRC covers revenue losses due to a low price, low yield, or any combination of the two Loss is due when the calculated revenue is less than the final guarantee for the crop acreage

37. 37 Revenue Assurance (RA) Provides coverage to protect against loss of revenue caused by low prices or low yields or a combination of both Has the Fall Harvest Price Option (FHPO) available With the option, RA works like CRC Protects a producer�s crop revenue when the crop revenue falls below the guaranteed revenue

38. 38 Group Risk Plan (GRP) GRP based on experience of county rather than individual farms Indemnifies the insured in the event the county average per acre yield or payment yield falls below the insured�s trigger yield Based on county yields and not individual yields Insured may have a low yield and not receive payment under GRP

39. 39 Soybeans Premium CalculationsStates and Plans States Arkansas Kentucky Louisiana Mississippi Tennessee Plans APH CRC RA with Harvest Price Option

40. 40 Basis for Developing Premiums Cropyear 2005 Price variability factors aren�t available yet for 2006 Type = No Type Specified Practice = Non-irrigated Rates for Irrigated and Non-irrigated are identical Optional Units No surcharges (other than RA-HPO) are included The Producer�s APH is set at the Reference Yield

41. 41 County Selection Basis for County Selection Select the largest County in each state Based on Policies Earning Premium, Acres, Liability, & Premium Selected Counties

42. 42 Arkansas SoybeansPremiums per Acre for 2005 Cropyear

43. 43 Premium Subsidy Factors - 2006

44. 44 Using the RMA Premium Calculator Go to: http://www3.rma.usda.gov/apps/premcalc/ See the following slides

45. 45 Starting Screen

46. 46 Enter Acres, APH, Rate Yield, and Share

47. 47 Example: Arkansas CRC

48. 48 GOOD FARMING PRACTICES Risk Management Agency

49. 49 Legislated Authority ARPA 2000 � Amended Section 508(a)(3)(A) of the Federal Crop Insurance Act Insurance provided�shall not cover losses due to � (iii) The failure of the producer to follow good farming practices, including scientifically sound sustainable and organic farming practices.

50. 50 Legislated Authority A producer shall have the right to a review of a determination regarding good farming practices made under subparagraph (A)(iii) in accordance with an informal administrative process to be established by the Corporation. [Sec. 508(a)(3)(B)(i)]

51. 51 Good Farming Practices (GFP) Defined: The production methods utilized to produce the insured crop and allow it to make normal progress toward maturity and produce at least the yield used to determine the production guarantee or amount of insurance, including any adjustments for late planted acreage, which are: Source: RMA MGR-05-010; www.rma.usda.gov/news/managers/2005/PDF/mgr-05-010.pdf

52. 52 GFP Definition Cont�d (1) for conventional or sustainable farming practices, those generally recognized by agricultural experts for the area; or (2) for organic farming practices, those generally recognized by the organic agricultural industry for the area or contained in the organic plan. We may, or you may request us to contact FCIC to determine whether or not production methods will be considered to be �good farming practices.�

53. 53 GFP Basics � To be a GFP, the Production Method: Allows the insured crop to make normal progress towards maturity Produces at least the yield used to determine production guarantee Does not reduce or adversely affect the yield Is generally recognized for the area by ag experts or contained in organic plan

54. 54 GFP Decisions (AIP)(Approved Insurance Provider) AIP must make a decision that methods used constitute GFP under Basics Producer may provide published material or a written opinion from an expert Producers should consult with AIP regarding any opinion/information Producers should consult with AIP regarding GFP compliance with Basics

55. 55 GFP Decisions (AIP) Shall be based on: the agronomic situation of the producer The producer provides the AIP all relevant information relating to the production method, including receipts, weather and climate factors, disease risks, etc. affecting the crop.

56. 56 GFP Decisions (AIP) Production methods are not considered a GFP when: method fails to meet standards, i.e. progress towards maturity, produce at least the yield, not reduce or adversely affect yield, and are generally recognized. there is no published materials supporting the recommendations or opinions of experts except when two or more experts support the recommendation or opinion. there is a genuine dispute between experts, or between the expert and published material

57. 57 Genuine Dispute When resolving a genuine dispute, AIPs should consider: whether there is a long standing general agreement among experts regarding the GFP, but a minority disagree; whether the producer can prove that similarly situated producers have used the method and the production was consistent with the APH yield;

58. 58 GFP Determinations (RO)(Regional Office; RMA) If the AIP cannot make a decision, or if the producer disagrees with the AIP�s written decision, then: the producer (through the AIP) or the AIP may request the RO to make a GFP determination such determination will be made based on the same standards as the GFP decision the request must be sent to the applicable RO serving the location of the insured acreage

59. 59 GFP Determinations (RO) If the RO determines that the request file is complete, then: RO may contact experts who have provided written opinions or who prepared published materials; a written GFP determination will be made by the RO and sent to the requestor, with copy to AIP or producer, as appropriate, and to shareholders and other AIPs

60. 60 Requirements for AIP/RO Decisions/Determinations Opinion of agricultural expert must: Be in written format, signed and dated Answer all questions requested by AIP/RO Be supported by research or published material Include signed conflict of interest disclosure statement Include evidence of FCIC approved professional certification, or title if CSREES or agricultural departments of States or universities.

61. 61 Agricultural Expert � Defined: Persons who are employed by the Cooperative State Research, Education and Extension Service or the agricultural departments of universities, or other persons approved by FCIC, whose research or occupation is related to the specific crop or practice for which such expertise is sought.

62. 62 Agricultural Experts - Approved American Society of Agronomy (ASA) Certified Crop Advisers Certified Professional Agronomists National Alliance of Independent Crop Consultants (NAICC) Certified Professional Crop Consultants American Society of Horticultural Sciences (ASHS) Certified Professional Horticulturists

63. 63 Agricultural Experts for Organics Appropriate Technology Transfer for Rural Areas (ATTRA) National Sustainable Agriculture Information Service - www.attra.ncat.org Sustainable Agriculture Research & Education (SARE) - www.sare.org In addition to those previously cited

64. 64 Reconsiderations By producer, in writing, within 30 days To Deputy Administrator of Insurance Services (RMA) Must include basis for reconsideration request Must show that determination was not made according to policies and procedures, or Not all material facts were considered

65. 65 Reconsiderations Producer will have additional time to support reconsideration request Producer may provide expert opinion Reconsideration will be file review RMA may contact Ag Experts to clarify Reconsiderations signed by RMA

66. 66 Reconsiderations Producer has right to Judicial Review within 1 year of RO determination or reconsideration decision RMA determination cannot be overturned unless arbitrary and capricious Judicial Review is in District Court

67. 67 Reconsideration Decisions Apply to all shareholders/companions on the acreage at issue Will receive a written decision Copy to AIP

68. 68 ASR Website The ASR Website provides real-time guidance to growers which they could use to document their good farming practices The guidance was provided by agricultural experts within the Cooperative Extension System The guidance was available to both growers and insurance companies Soybean alerts made everyone aware of the areas where soybean rust might become a problem

69. 69 Published Material Required to support good farming practice determinations Information published by an agricultural expert such as agronomy guides, extension service publications, chemical labels, scientifically sound research, textbooks, university agronomic recommendations

70. 70 Source: www.rma.usda.gov/news/2005/03/soybeanrustqanda.pdf Attachment 2Questions and Answers

71. 71 1. RMA has issued a guidance about the need for producers to follow good farming practices when controlling Asian soybean rust and complying with Federal crop insurance policy provisions. Has RMA defined these good farming practices? The definition of �good farming practices� is located in the Common Crop Insurance Policy Basic Provisions. Further, the terms referenced in the definition of good farming practices have also been defined for further clarity. To determine whether a disease control measure is a good farming practice, four questions must be answered by the agricultural expert � whether the recommended disease control measures will: (1) Allow the insured crop to make normal progress toward maturity; (2) Produce at least the yield used to determine the production guarantee or amount of insurance, including any adjustments for late planted acreage; (3) Not reduce or adversely affect the yield if it is applied or not applied to the insurance crop; and (4) Be generally recognized for the area or contained in the organic plan, as applicable. If an answer to any of the above stated questions is negative, the disease control measure would not be considered a good farming practice.

72. 72 2. Who should be considered the local agricultural expert regarding providing guidance in the following good farming management practices? Agricultural experts currently approved by RMA include plant pathologists who are employed by the Cooperative State Research, Education and Extension Service, the agricultural departments of States and universities, and certified crop consultants. Other persons may be qualified if their research or occupation is related to the specific crop or practice for which such expertise is sought. To obtain approval for such persons contact RMA�s Deputy Administrator for Insurance Services at USDA/RMA/Deputy Administrator or Insurance Services/Stop 0805, 1400 Independence Avenue SW., Washington, DC 20250-0805. Websites such as www.ces.ncsu.edu/depts/pp/soybeanrust/index.htm, www.aphis.gov, www.soygrowers.com, www.stopsoybeanrust.com, www.soybeanrustinfo.com, www.usda.gov/soybeanrust, and www.epa.gov may also contain helpful information about ASR treatments.

73. 73 3. What are the obligations of the producer in dealing with this issue? Producers are responsible to keep informed of Asian soybean rust outbreaks in their area and act appropriately to prevent or eradicate the outbreak. This includes frequently scouting their fields and documenting their findings. Just as with virtually all other diseases, soybean producers should consult an agricultural expert when Asian soybean rust becomes a threat in their area. Producers must also follow recommendations from local agricultural experts to control or prevent the disease.

74. 74 4. Some concerns regard the availability of fungicides to fight the disease. What will happen if there are not enough chemicals to properly treat soybean fields infected by Asian soybean rust? The producer must make all efforts to obtain the recommended fungicides. If a producer is unable to obtain the needed fungicides prior to or during the time periods when such application is required, losses resulting from an Asian soybean rust infestation will be covered. Producers should document the circumstances and results of their efforts to obtain fungicides.

75. 75 5. Considering the number of producers affected and the fact that many producers do not own their own applicators, will coverage be provided in the event there are not enough applicators to apply needed fungicides? As with the availability of fungicides, the producer must make all efforts to obtain applicators. However, if the producer is unable to apply fungicides timely and at recommended levels because applicators are not available for use, losses resulting from an Asian soybean rust infestation will be covered.

76. 76 6. What are the recommended applications for organic soybean producers? Organic soybean producers should consult with their local organic agricultural industry person to determine recommended applications. The organic agricultural industry persons currently approved by RMA include plant pathologists who are employed by the following organizations: Appropriate Technology Transfer for Rural Areas, Sustainable Agriculture Research and Education or the Cooperative State Research, Education and Extension Service, the agricultural departments of States and universities, and certified crop consultants.

77. 77 7. How will the Federal crop insurance program respond if recommended organic applications do not work again Asian soybean rust? Organic production practices approved by a certifying agent are considered good farming practices and soybean producers are required to follow such good farming practices and the recommendations of the local organic agricultural industry persons. Organic producers are not required to do anything that may endanger their organic certification. If the losses are unavoidable due to naturally occurring events and producers follow organic good farming practices, then Asian soybean rust is an insured cause of loss.

78. 78 8. What are the chances that these organically approved applications will work against Asian soybean rust? Only local organic agricultural industry persons are qualified to respond and such persons should be consulted.

79. 79 9. What if the cost of chemicals or organic materials outweighs the benefits? Once I plant the crop, isn�t it still insurable? Economics are not a consideration in determining if good farming practices have been used. If rust infects or threatens an insured�s soybean crop, to be eligible for the full amount of coverage, producers must apply the recommended applications and follow good farming practices regardless of cost. Failure to follow the recommendations of the agricultural expert or local organic agricultural industry persons because the producers does not want to or cannot afford to incur the costs associated with following the recommendations, because the costs associated with following such recommendations is greater than the value of the crop, or because the producer is unable to obtain financing is not considered a good farming practice.

80. 80 9. What if the cost of chemicals or organic materials outweighs the benefits? Once I plant the crop, isn�t it still insurable? If a producer chooses not to properly care for the crop, the crop is still insured. However, the losses associated with the decision to not care for the crop would be considered damage caused by uninsured causes and the production loss associated with such uninsured causes would be considered in the determination of production to count, resulting in a reduction in the indemnity. For example if an application of disease control measures would prevent further losses of 5 bushels per acre, and the producer elects to not treat the crop, then crop insurance may cover other losses except that 5 bushels.

81. 81 10. What if there is a control measure listed for Asian soybean rust in the organic plan and a newly approved control measure becomes available? Can the plan be amended? Yes. The organic plan may be amended to include additional measures, should the need occur. Organic producers would need to contact their certifying agency. Consult the Organic Materials Review Institute at www.omri.org, or the USDA-National Organic Program at www.ams.usda.gov/nop, or, in the case of the Iowa Department of Agriculture and Land Stewardship (organic certification program), at www.agriculture.state.ia.us.

82. 82 11. Should producers document their production practices? It is strongly recommended that producers document their actions including any advice or opinions from agricultural experts or organic agricultural industry person and any actions taken in response to such advice or opinion. Acceptable documentation includes, but it is not limited to, the following: 1. Data from local weather stations; 2. Published anecdotal records such as newspaper and magazine articles; 3. Farm Service Agency reports; 4. Written recommendations from extension agents or other agricultural experts (see crop insurance policy for a listing of qualified persons); 5. Printed information from Federal, state, university or extension official websites;

83. 83 11. Should producers document their production practices? 6. Other published information (facts sheets, bulletins, newsletters, etc) from: A. Land grant universities; B. Cooperative extension service; or C. Independent their parties such as farm advisors or certified crop consultants. 7. Contemporaneous records of planting, spraying, scouting, harvesting and any other applicable farm practices such as journals, logs, etc. that contain the date the practice occurred and how it was carried out; 8. Contemporaneous journals, logs or notes of persons contacts, the date, and the information provided; 9. Chemical labels and brochures; and 10. Other records as determined necessary by the crop insurance company or RMA. 11. Unpublished documentation may be subject to verification.

84. 84 12. To whom should producers go for further information? Producers that could be impacted by Asian soybean rust should talk with their chemical suppliers, certified crop consultants, and plant pathologists in agriculture departments of State governments, universities, and USDA�s Cooperative State Research, Education and Extension Service who are familiar with the risks of exposure to this disease. Producers should direct crop insurance questions to crop insurance agents and agronomic questions regarding production methods to local agriculture experts and organic agricultural industry persons.

85. 85 Alternative Risk Management Considerations

86. 86 Source: www.farmdoc.uiuc.edu/manage/newsletters/fefo05_06/fefo05_06.html Many share-rent arrangements share chemical costs between landlords and farm operators in proportion to the shares of crop revenue. Questions of how to share fungicide costs arise under arrangements that do not share chemical costs in proportion to crop revenues. In these situations, there may be ambiguity whether fungicide costs should be shared equally or paid totally by the operators. Written leases may not totally clarify how fungicides should be split because some may not specifically mention fungicides. Technically, fungicides are a sub-category of pesticides and the cost likely will be split according to the percentage indicated for pesticides. In general, clarifying up front how fungicide costs will be shared is wise. If an oral lease is used, the issue obviously needs clarification.

87. 87 �Harvest-Price Revenue Insurance and Pre-harvest Pricing: Companion Tools for Managing Grain Price and Yield Risk� By Dr. Robert N. Wisner, University Professor of Economics and Extension Grain Marketing Economist, Iowa State University Source: Crop Insurance Today, August 2001

88. 88 Today�s farm economy reflects narrow profit margins, substantial price risk, and increased weather volatility. Even with government payments, a cash-only marketing strategy and normal yields in recent years has generated very limited profits or no profit at all

89. 89 Article Highlights Cont�d Pre-harvest Pricing Historical track record indicates the odds of enhancing prices versus those available at harvest or through storage are increased with pre-harvest sales December corn prices higher in 80% of years since 1975 November soybean prices higher 66%

90. 90 Article Highlights Cont�d Managing Production and Price Risks at the Same Time Crop Revenue Coverage (CRC) and Revenue Assurance with fall harvest price option (RA-F) are logical companion products for pre-harvest pricing Both guarantee dollars per acre of coverage, with coverage increasing if prices rise at harvest from the initial pre-harvest levels Coverage is based on price times yield Producer is not fully protected against price declines

91. 91 Article Highlights Cont�d Results of combining this tool with pre-harvest pricing 1. Protection against lower prices even with better-than-normal yields 2. In case of low yields, the insurance provides for replacement of the lost (non-produced) inventory at the higher harvest price, thus providing coverage to buy back over-sold forward contract or hedges

92. 92 Personalized Risk Management Strategies

93. 93 Pre-Season Risk Management Checklist

94. 94 Risk Management Checklist Financial Considerations Marketing Plan Deadlines

95. 95

96. 96 Contingency Implementation

97. 97

98. 98

99. 99 Post-Season Assessment Was risk assessment accurate? Were control measures necessary? If measures taken, were they effective? Evaluate cost of control measures and monitoring in relation to benefits/risks Develop plan for next season

100. 100 Post-Season Assessment