Crop Insurance

Working the land as a farmer or rancher is challenging and rewarding. But growers and ranchers contend with a unique set of risks. Events outside their control could cause a drop in revenue or a crop to fail.

How do farmers engage in risk protection? What risk management tools do they employ to provide a safety net? Read on to learn more about the protections offered by crop insurance coverage.

What Is Crop Insurance?

Crop insurance is an important risk management tool for farmers and ranchers. It helps protect them against declines in revenue or crop yields. There are two categories of crop insurance — federally subsidized multiple-peril crop insurance (MPCI) and state-regulated private crop insurance.

History of Crop Insurance

Crop insurance options are available in the private insurance sector and through the federal government. Various insurance providers are available for agricultural producers and farming operations.

Congress first authorized crop insurance in the 1930s. It was an attempt to help agriculture recover from the devastation caused by the Great Depression and the Dust Bowl. Congress created the Federal Crop Insurance Corp. (FCIC) in 1938 to carry out this program.

Since its inception, the United States Department of Agriculture's Federal Crop Insurance Program evolved into a critical federal support program for American agricultural producers.

In 1980, Congress passed the Federal Crop Insurance Act of 1980. This legislation expanded the program. It allowed private insurance companies to sell crop insurance. There are several coverage options to choose from.

In the 1980s and 1990s, droughts and other catastrophic weather events wreaked havoc. They significantly impacted several types of agricultural production. In response, Congress passed the Federal Crop Insurance Reform Act of 1994. Congress intended that the federally regulated crop insurance program would shelter taxpayers.

In the years that followed, federal crop insurance programs evolved. For example, in 1994, Congress required participation in the federal insurance program. It was mandatory. Congress repealed this requirement in 1996. Then, in 2000, Congress expanded the role of the private sector. It allowed entities to participate in the research and development of new insurance products and features.

The 2014 Farm Bill substantially strengthened crop insurance. It added new products and options for farmers and ranchers. This bill also introduced Beginning Farmer and Rancher Benefits. These benefits make crop insurance more affordable for new farmers.

Federal Crop Insurance Program

Multi-peril crop insurance (MPCI) is federally supported and regulated insurance. It helps farmers manage the risk of natural disasters. The Risk Management Agency provides this type of insurance. MPCI protects farmers from common crop-loss causes, including:

• Extreme weather like hail, frost, excessive moisture, and strong winds
• Crop disease
• Drought
• Fire
• Flooding
• Insect damage

MPCI crop insurance premiums are directly tied to the value of the specific crop. The federal government sets a deadline each growing season. Farmers must purchase MPCI insurance before the deadline to ensure coverage for that crop year.

Insureds must purchase this insurance before planting the crop. If damage occurs early in the growing season, there may be incentives for farmers to re-plant or penalties for failing to do so.

The U.S. Department of Agriculture USDA Risk Management Agency provides resources for new farmers and ranchers who are just starting out. The RMA also provides crop insurance agent information for customers across all 50 states.

The Federal Crop Insurance Program provides subsidies. These subsidies allow agricultural producers to purchase insurance policies. There are several government programs addressing farm risk management.

These policies pay indemnities when the insured's yields or revenues fall below guaranteed levels. Other types of policies, such as index policies, are triggered by weather conditions. Such policies make indemnity payments based on weather conditions.

According to the USDA, "the FCIP participation from 2000 to 2021 covered 82 percent of eligible acres among producers of barley, corn, cotton, flaxseed, oat, peanut, potato, rice, rye, sorghum, soybean, sugarbeet, sugarcane, sunflower, sweet potato, tobacco, and wheat." These are considered traditional crops.

Specialty crops are defined by statute. Specialty crops include:

• Fresh and processed fruits and vegetables
• Tree nuts
• Nursery crops
• Herbs
• Spices
• Coffee
• Tea
• Honey
• Maple syrup

The USDA has expanded federal crop insurance for specialty crops. Specialty crops were traditionally not eligible for USDA's revenue-support programs. But they now account for many federal crop insurance policies bought by farmers.

The Federal Crop Insurance Program offers agricultural producers financial protection. A wide variety of crop insurance products serve producers. Broad categories of crop insurance include individual-based policies or index-based policies.

Individual Policies

Individual policies trigger indemnity payments to cover crops lost by an individual producer. Such policies can be divided into either yield or revenue protection policies.

Yield-based policies protect against a drop in the quantity of production. This would cover low yields. On the other hand, revenue-based policies guarantee a certain production revenue. They protect against low output prices. It could also protect against a drop in the quantity of production.

An insurer will make a pay-out for an insured crop based on how much lower a year's revenues are than previous years. Crop revenue insurance can help farmers create a farm safety net. It helps protect their livelihood against drastic changes in crop prices, regardless of the cause.

Index-Based Policies

Index-based policies track an index. They may not directly correlate with a single insured's experience. Index policies represent a relatively small portion of total liability compared to individual policies.

Private Crop Insurance Policies

In parts of the country, hail is a common peril that may impact farming practices. Many farmers carry crop-hail policies to protect against hail damage in these places. Many farmers buy crop-hail policies as a supplement to MPCI coverage. These products may typically be purchased at any time during the growing season. Crop-hail policies have a low or even no deductible.

Unlike drought and other extreme weather conditions that impact crops, hail is unique. It can destroy a significant part of a planted field while leaving the rest undamaged. As a result, a hail claim may be less than the amount of the deductible for MPCI insurance policies.

Crop-hail policies are not part of the Federal Crop Insurance Program. Private insurance companies sell these policies to farmers and ranchers. State insurance departments regulate the private crop insurance market. A reinsurance agreement with the FCIC does not govern such insurance.

Get Legal Help With Crop Insurance Issues

Protecting your livelihood is essential if you are in the farming or ranching industry. If you need help with the legal aspects of crop insurance, speak with an experienced insurance law attorney in your area today.