Crop Insurance Myths Debunked
We recently interviewed Joel Alsdorf, crop insurance specialist for AgChoice Farm Credit. Farming is unpredictable with many outside forces dictating your success in the field. Since you can’t control the weather, the only thing that can guarantee a yield, or indemnity in place of a yield, is crop insurance. Crop insurance can help you survive a disaster and return your business to profitability, improve your cash flow in a down year and manage your risk. Yet many farmers are hesitant to sign up for crop insurance for a variety of reasons. During the interview, Joel busted common crop insurance myths.
I’m sure one of the most common concerns you hear from farmers is that “crop insurance doesn’t pay” or “crop insurance costs too much.” Is this true?
That is a good question and a common myth! The answer is no, not true.
Historically, crop insurance has a pretty good track record. We have actually seen a tremendous value for cost to Northeast producers. In fact, $553 million in crop loss payments were paid out to farmers through the Federal Crop Insurance Program. That coverage cost about $187 million in premiums. That is a powerful return to our ag industry.
The way I view this, if these growers had self-insured, Northeast agriculture would have suffered a loss of more than $365 million dollars in equity. If we were to break that down to a personal level, Pennsylvania farmers received $67 million of those claims’ dollars at the cost of $19 million in premiums. That is pretty significant considering almost all of PA grain production is still coming from family businesses.
So let’s move to the second part of the question, When talking about the cost of crop insurance, know that it is federally subsidized which makes it affordable. The cost of crop insurance is well below the cost of commercial private insurance. In fact, the government subsidizes from 50 to 95% of the liability, significantly reducing the liability risk to our producers. Based on the numbers were talking about here, we really begin to see how minimal the cost of crop insurance coverage is when compared to, say, the risk of being completely self-insured.
Besides the cost, another area of confusion with crop insurance is what’s covered and how to set up production history. We often hear “my crops aren’t covered” or “I have to use the county average yield in setting up production history.” Tell our listeners how you respond to those concerns.
It’s true that not all crops are insured in every county, and that can cause a fair bit of concern. Especially for producers who are heavily leveraged. But the good news is, if you grow a crop that is insurable somewhere in the United States (and it’s not under a pilot program), your crop insurance agent can request rates that offer the same program and protection as insurable crops.
An example of this would be a written agreement that is tailored to your specific operation. In addition, sometimes, Whole Farm policies offer coverage for diverse operations producing crops that are otherwise uninsurable. Sometimes it is hard to know what is available until we ask for it. Usually there is something we can do to help a producer, so they are not left holding the bag alone.
We also talk a lot about production history and crop records, and I would say rightfully so. There is a lot to this. But it really is an area where farmers can strongly influence the quality of their coverage. So, let me unpack this for you a little bit.
Because your policy is based on a percentage of your production, (this is basically deductible you choose) you can see, how good production records provide a stable framework for the best coverage.
Now, there are a number of reasons why a producer may not have production records. In these cases, a percentage (somewhere between 60 -100%) of the county yield (depending on the situation) is used to establish a production history until you can start providing your own production records. So yes, there can be some confusion around this topic, but again, we do have options available.
There is plenty more to this conversation, with many variables, so I would just encourage anyone with questions to reach out to one of our agents for further guidance.
Lastly, let’s talk about what’s involved from an indemnity standpoint. Do farmers have to have a total loss to qualify?
So, the answer to that is No. So much of what farmers face each day is based on percentages. We like to be able to get 100% of our hay made, we like to be able to plant 100% of our corn on time. The list is rather large and farmers are excellent at managing these things, but the truth is, it’s not always possible (oftentimes because of things outside of our control). The most common being weather.
I’m going to get real serious here, in saying that, “what it really comes down to, is, how much loss can a producer stand before it affects the bottom line in a manner in which they may not be able to recover?” This is different for everybody. Crop insurance is designed to be flexible to fill in these gaps, really at different levels of need. So, in plenty of cases, a farmer may have a fairly small loss and still receive payment. It can go the other way though if someone is underinsured for the level of investment they have outstanding in the crop.
I can’t stress enough how important it is to discuss appropriate coverage needs with your agent, and reevaluate them yearly as part of your management program. I think this keeps the farmer in the driver’s seat and helps them understand the value of their coverage.
As we wrap up, feel free to share any other perspectives with our listeners.
Sure! You know, we are seeing some pretty wild shifts in weather patterns and it has caused a lot of stress to a very wide scope of producers. I would just like to take a moment and encourage our farmers and say thank you for what you do every day, putting food on our tables, strengthening our economy, providing jobs and raising the next generation of folks that know how to do stuff. I can sincerely say that for all three of the agents here at AgChoice, the best part of our job is working with farmers and the privilege of being included in their success stories. So, as we move into fall harvest time, it’s easy to feel overwhelmed, but just look for those things that you enjoy, remember to look up from the crop row once and a while and take pleasure in a job well done. You have people in your corner who want you to be successful, sometimes it’s just encouraging to know that.
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