colorado fruits & vegetables growers association · • wfrp provides a gross revenue guarantee...
TRANSCRIPT
Colorado Fruits & Vegetables Growers Association
Risk Management Tools
• Federal Multi Peril Products o Actual Production History (APH) o Dollar Plans o Whole Farm Revenue Protection (WFRP)
• Private Named Peril Products o Crop Hail
During today’s meeting, we’ll cover the following Crop Insurance Products
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Agenda
• Adverse Weather
o Frost, wind, drought, heat, hail, rain
• Bird & Wildlife Damage
• Diseases & Pests
• Earthquake, Wildfire & Volcanic Eruptions
Adverse market conditions are not covered
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Federal Multi Peril Products | Covered Causes of Loss
Actual Production History
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Actual Production History (APH) | Overview
• Product availability by county/crop • Grapes, Tree Fruits, Onions, Vegetable Crops,
Potatoes • Yield based guarantee at the RMA established
price • Coverage Levels: CAT (50/55) or Buy up 50% -
85% in 5% increments • Units Available: Basic, Optional • Premium rates based upon risk in crop/county
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Actual Production History (APH) | Product Example
Step 1: Calculate Yield Guarantee
APH x Coverage Level x Acres x Share
Production Yield x Acres x Share
Step 2: Calculate Actual Yield
Step 3: Calculate Indemnity Payment
Yield Guarantee – Actual Yield x Expected Price
• APH provides a minimum yield guarantee
• No revenue guarantee
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Actual Production History (APH) | How does it manage risk?
Dollar Plan
• Product availability by county/crop
• Fresh Market Sweet Corn
• Specialized plan that provides specific Dollar per Acre Coverage (established by RMA)
• Coverage Levels: CAT (50/55) or Buy up 50% - 75% in 5% increments
• Units Available: Basic, Optional
• Premium rates based upon risk in crop/county
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Dollar Plan | Overview
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Dollar Plan | Product Example
Average Price – Allowable Cost
Step 3: Calculate Sold Production
Step 4: Calculate Indemnity Payment
Step 1: Calculate Dollar Guarantee
Referenced Max Dollar Amount x Coverage Level x Acres x Share
Step 2: Calculate Net Value
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Dollar Plan | Product Example
Step 1: Calculate Dollar Guarantee
Step 2: Calculate Net Value
Step 4: Calculate Indemnity Payment
Dollar Guarantee – Sold Production
Step 3: Calculate Sold Production
Containers Sold x Acres x Net Value
• Dollar Plan provides a minimum value guarantee
• No yield guarantee
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Dollar Plan | How does it manage risk?
Whole Farm Revenue Protection
• Revenue safety net for all commodities grown under the farm entity
• Provides coverage for crops that do not currently have a crop insurance program
• Uses the average of your most recent 5 years tax returns to establish coverage (approved revenue) o Those who qualify for Beginning Farmer or Rancher,
need at least 3 consecutive years tax returns
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Whole Farm Revenue Protection | Overview
• Coverage levels range from 50 – 85% of Approved Revenue
• Option to increase coverage up to 35% for expanding operations
• Limits insured revenue to $8.5 M
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Whole Farm Revenue Protection | Overview
• Additional benefits for diverse enterprises o Lower premium
o Qualify for higher coverage levels (80-85% for 3 or more commodities)
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Whole Farm Revenue Protection | Benefits
• Can be written as a stand alone policy or with underlying MPCI coverage
• Government Subsidized o 80% subsidy available for some coverage levels
• Allows for direct marketing revenue to be insured
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Whole Farm Revenue Protection | Benefits
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Whole Farm Revenue Protection (WFRP) | Product Example
Step 1: Calculate Income Trigger
Step 2: Calculate Revenue to Count
Step 3: Calculate Indemnity Payment
Approved Revenue $750,000 x Coverage Level (85%) x .85 $637,500 Income Trigger $637,500
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Whole Farm Revenue Protection (WFRP) | Product Example
Step 1: Calculate Income Trigger
Current Yr. Income from Production $500,000 Add: Ending Inventory less + $ 20,000 Subtract: Beginning Inv. - $ 25,000 Cost Basis Cost Basis Add: Uninsured Cause of Loss + -0- Add: Value of Abandoned Crop + -0- Add: Crop Insurance Indemnity + $ 65,000 Add: Commodity Hedge Gain + -0- Revenue to Count $560,000
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Whole Farm Revenue Protection (WFRP) | Product Example
Step 2: Calculate Revenue to Count
Income Trigger $637,500 Less Revenue to Count (560,000) Indemnity Amount $77,500 Insurance Premium $ 8,836 (85% Coverage Level)
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Whole Farm Revenue Protection (WFRP) | Product Example
Step 3: Calculate Indemnity Payment
• WFRP provides a gross revenue guarantee using accrual adjusted revenue from tax returns. o Losses determined on a whole farm basis – not
on a crop basis
• Loss determined on adjusted actual revenue • Paired with MPCI gives both crop level and
farm level coverage
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Whole Farm Revenue Protection | How does it manage risk?
• Valuation of inventories could impact loss • Good record keeping is critical on this
product • Losses paid after taxes are filed
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Whole Farm Revenue Protection | Important Reminders
Private Risk Management Tools
• Specific coverage for hail and/or fire
• State specific contracts
• Various deductibles available
• Wind, Green-snap, tornado endorsements available by crop/county/township
• Rates vary with risk level by township
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Crop Hail | Overview
Insurance Per Acre (IPA) x Acres x Share = Total Liability
$100 X 10 Ac X 100% = $1,000
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Crop Hail | Example
Step 1: Calculate Total Liability
Additional .5% after 70% Policy pays out at 90% Loss
• Premium Flexibility o Decide your liability
o Choose a deductible
• No Application Deadline
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Crop Hail | How does it manage risk?
Conclusion
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• Risk will not disappear
• Agriculture has always faced unpredictable weather and fluctuating prices
• Planning ahead is important to manage risk
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Importance of Risk Management
