Fresh & Local
Managing the Risks of Farming
Column #58, Published Oct 26th, 2012
Farming is a risky business. Sweltering heat. Freezing cold. Extended drought. Monsoon rain. Infestations of weeds. Mysterious diseases. Clouds of insects. Marauding herds of deer, groundhogs and raccoons. Any one of these can destroy a crop. Price fluctuations can destroy a crop’s profitability.
Traditional crops, such as corn and soybeans, require a major expense to plant the crop in the spring, with the hope of receiving income in the fall. If the crop is destroyed, by a summer drought for example, then not only is there no fall income, but the farmer is going to have to come up with the major expense of planting again the following year, and wait until the following fall for income.
Two years is a long time to go without income. One or two bad years can put a farm out of business. That is a heavy risk to carry.
So during the Dust-Bowl days, Congress passed the Federal Crop Insurance Act of 1938 that created the Federal Crop Insurance Corporation (FCIC). The U.S. Department of Agriculture helps farmers manage risk by offering crop insurance, and the FCIC manages the program. USDA is the insurer, but the policies are sold through local insurance agents.
Originally, crop insurance was limited to major commodity crops (such as corn, soybeans, small grains and forages) and major agricultural producing areas. It was also “yield protection,” meaning that it covered losses in production, but not losses from low commodity prices.
Traditional farmers growing major commodity crops can manage risk with crop insurance. But what about small, local market farmers like us growing non-traditional crops, like mesclun greens? How do we manage risk?
The risk management strategy that we currently use is diversification. This is also called, “Not putting all your eggs in one basket.” If you have lots of different crops, then even if you lose one crop, you always have other things to sell. I added them all up, and we have over 30 different crops. In addition to all the greens, we have flowers, berries, and the jams and jellies.
Diversification, though, has one big disadvantage: it takes a lot of time and effort to keep that many crops going.
But there is another risk management possibility. I talked to Billy Frederick at Central Virginia Insurance Agency in Culpeper recently about a new kind of crop insurance called Adjusted Gross Revenue-Lite (AGR-Lite).
Unlike the original crop insurance which was yield protection, AGR-Lite is a whole-farm revenue protection package. This insurance protects against low revenues from losses attributable to unavoidable natural disasters such as adverse weather, insects and disease, and market price fluctuations.
And also unlike the original crop insurance which covered only major crops, AGR-Lite covers revenue losses of income from most agricultural commodities produced on the farm including animals and animal products such as milk, and greenhouse production. AGR-Lite is intended for farms that produce commodities not covered under traditional crop insurance policies, or have diversified operations that may include organic farming practices or directly marketed produce.
The AGR-Lite coverage is based on a farm’s 5-year historical average revenue as reported to the IRS on Schedule F, and on the farm’s current year expense and revenue plan. The coverage period is for one year (either calendar or fiscal) and any claims are settled after the taxes are filed for that year.
Small farms growing specialty crops now have a new risk management tool to consider.
Bryant Osborn and his wife Terry own Corvallis Farms in Culpeper County. His column on fresh and locally grown food runs every Friday. He can be reached at firstname.lastname@example.org