Farmers are well-acquainted with the risks that nature and markets can pose to income.  A rainy spring can ruin a lettuce crop. A summer hailstorm can destroy a field of tomatoes. Price fluctuations can make a crop worth less than expected.

Most market farmers mitigate their risk by diversifying; if one crop fails, there are many more that might make up the loss. Another way to manage the risks of weather and markets is to insure against income loss through the federal farm insurance program called AGR-Lite, now available in 35 states. AGR-Lite has been widely promoted in the past year as being a great program for organic, diversified and direct market farms. But is it a good option for your farm? Only you can decide; here are some facts that will help you figure it out. The deadline for signing up for this year is March 15.

Unlike traditional crop insurance, which can be purchased for specific commodities, AGR-Lite protects a farm’s revenue. AGR-Lite provides protection against low revenue due to unavoidable natural disasters and market fluctuations. Several levels of coverage are available. Producers can choose to insure 65, 75 or 80 percent of their annual income. If their income drops below that chosen percentage, they can choose to be compensated at a rate of either 75 percent or 90 percent. Premiums are more expensive for the higher levels of coverage.

The amount of income that can be covered is based on a farm’s previous five years income as reported on the IRS Schedule F.

Here is an example: Farm A has an average annual gross revenue of $100,000. The farmer purchases an AGR-Lite insurance policy at the 80 percent coverage level and 75 percent payment rate. A drought that summer reduces yield and quality on several crops and the annual gross income drops to $70,000. Because the farmer chose the 80 percent coverage level (the highest available), $80,000 of revenue is covered. Actual revenue of $70,000 is $10,000 short of the covered level. The insurance policy will pay 75 percent of the shortfall, or $7,500.

Premiums
The cost of the insurance varies according to location, type of crops, and coverage levels. USDA’s Risk Management Agency has a premium calculator online at http://www.rma.usda.gov/tools/premcalc.html. Here is the premium estimate for a hypothetical vegetable market farm in Douglas County, Kansas (home to Growing for Market) with an average annual revenue of $100,000:

Coverage level    65%        75%        80%
90% payment    $1,439        $2,278        $3,108
75% payment    $1,199        $1,899        $2,590

In general, premiums range from about 1 percent to 3 percent of gross revenue. That may seem like a lot of money for smaller producers. (The hypothetical farm above would net less than $5,000 after paying the premium), but it begins to be more attractive for larger producers. And, of course, if income is reduced significantly then the premium starts to look like a small price to pay.  If the farm cited above lost half its usual revenue to bad weather or markets, the insurance would pay $22,500 for the year.

AGR-Lite, which was created in Pennsylvania in 2003 but has been widely available only since 2007, has sold about 400 policies nationwide each of the past two years. But in one of those years, it paid out $1.37 million. Obviously, some farms benefit from the program. Those that have a long history will be in the best position to judge the chances of a catastrophic income loss.

Who and what is eligible?
Growers must be U.S. citizens, farming in one of the 35 covered states: Alabama, Alaska (selected counties), Arizona, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York (selected counties), North Carolina, Oregon, Pennsylvania (except Philadelphia County), Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Growers must have five years of Schedule F filings to prove revenue. Liability cannot exceed $1 million (about $2 million in total revenue). Only crops produced on the farm are eligible – growers who buy and resell others’ products cannot claim those as covered revenue. Value-added products cannot be included in the revenue. Premium prices for direct-marketed and organic products are allowed.

Income loss caused by natural disasters or market fluctuations can be compensated. That includes droughts, floods, hail and even things like lost crops because it was too wet to plant. Income loss caused by negligence, crop abandonment, mismanagement or wrongdoing (such as employee theft) is not covered. Some mechanical disasters are covered and some aren’t. If a storm causes a power outage and you lose a cooler full of crops, that’s covered. If the well pump breaks and you don’t get it fixed, and therefore don’t irrigate, your crop loss is not covered.

Market problems are covered; for example, if Chinese garlic floods the market and prices plummet, you may be compensated if you have to sell your garlic at the lower price. Many other details of the program will determine if it is a good fit for your farming business, so read the provisions carefully.

Where to get it
AGR-Lite is administered by USDA, but sold through private insurance agents. Contact the local Farm Services Agency or search on the Risk Management Agency web site at www.rma.usda.gov.