Crop and Livestock Insurance Options for Diversified Operations

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Getting Started

Crop and livestock insurance is a key tool available to support the stability of farm and ranch businesses. When businesses lose income from uncontrollable events like extreme weather or disease, they can regain some of that lost income through a crop or livestock insurance policy. There is a range of crop and livestock policies available, and most will allow a grower to choose between a yield-based policy or a revenue-based policy. Yield-based policies will help a farmer or rancher receive compensation for lost crops or livestock based on what those products would have received on the commodity market. Actual revenue-based policies will help a farmer who sells their products at a price above the commodity value (like organic farmers, direct-to-consumer growers, etc.) receive compensation for lost crops and livestock based on the revenue their specific operation would have received from the sale of those products. If you need more guidance on whether a revenue or yield-based policy might better serve your needs, check out our Crop and Livestock Insurance Basics.

If you are ready to explore the specifics of revenue-based policies, this guide is for you! At this time, this guide focuses on the Whole Farm Revenue Protection (WFRP) policy and Micro Farm program. WFRP is especially valuable to diversified growers and growers that receive premium prices, perhaps through organic production, direct-to-consumer sales, or other premium markets. We will help you assess whether WFRP is right for your operation and discover how to move forward in securing the right coverage for you.  For an interactive learning experience on your own schedule, take our self-paced course Crop and Livestock Insurance Planning for Agricultural Producers. This self-paced course helps producers identify a crop and livestock insurance strategy that aligns with their goals and budget.

There are many federally subsidized crop and livestock insurance policies that farmers can use to cover uncontrollable risks to the farm or ranch, including disease, weather events, and more. But the wide majority of these policies are not well suited for diversified farms and ranches because of one important characteristic: they only cover one crop or one livestock type. A grower who produces several different crop and livestock products would need to buy many different policies– making for an inefficient process that has made it difficult for diversified growers to access an important risk management tool.

This is why Whole Farm Revenue Protection (WFRP) was created. WFRP allows producers to insure two or more crop or livestock revenue streams under one policy. This policy is revenue-based, so farmers and ranchers are protecting their actual historic prices. As many diversified growers also sell directly to consumers or grow organically, the revenue-based coverage takes those higher prices received into account.

This guide focuses on WFRP for now because it is generally the most valuable policy to a diversified or direct-to-consumer audience. However, if you think that a single-crop or livestock-specific policy is best for you, reach out to a crop insurance agent. If you want to learn more about how WFRP can be helpful, read on!

If I lose revenue because of diseased or damaged crops/ livestock, how can WFRP help me?

With WFRP, producers can insure up to 85% of the revenue from their entire operation (including crop, livestock, and nursery production) under a single policy. Let’s look briefly at the mechanics of the policy with an example.

Famer Laura operates a diversified produce farm in North Carolina. She is spooked by increasingly erratic weather and decides to insure her revenue through WFRP. To do this, she files reports with the USDA that indicate her anticipated revenue for this season, based on her farm tax documents from previous seasons. She anticipates a gross revenue of $100,000 for this season and chooses to insure 85% of that revenue ($85,000).

As the season progresses, drought impacts all of her crops. At the end of the season, Laura has grossed $70,000 in revenue. A loss adjuster works with Laura to account for the $30,000 difference between her expected and actual revenue, and they determine that the lost revenue was due to unavoidable and natural causes. Because her total revenue of $70,000 falls below her insured revenue of $85,000, Laura will receive a payout of $15,000 to account for her losses.

This example illustrates how WFRP insures the revenue of an operation, rather than a specific crop, under a single policy. This is ideal for diversified farms where revenue streams might come from seedling sales, CSA shares, value-added production, and wholesales. But what about other revenue streams on the farm, like agritourism activities or equipment rentals? Let’s see which types of revenue are eligible for insurance coverage under WFRP.

What revenue from my farm or ranch operation can be insured under WFRP?

Although WFRP is a revenue-based policy, not all revenue is eligible for coverage. Through the process of applying for WFRP farmers and ranchers will calculate their allowable revenue, the revenue that is eligible to be insured. Generally, allowable revenue refers to all revenue “directly related to the production of commodities,” like the sale of animals, produce, grains, seeds, and other things grown or raised on your farm or ranch. WFRP will also cover revenue from the sale of animals and products purchased for resale. WFRP will exclude revenue from activities unrelated to the production of commodities– like equipment rentals, contract jobs, the sale of uninsured products (timber, foraged goods, federally controlled substances), and souvenirs or merchandise sold at the farm store.

WFRP includes something called the Micro Farm option. This option will insure revenue from post-production operations (freezing, packaging, etc.) and value-added goods (gift baskets, jams, etc.) in addition to the typical sales of crop and animal products. As value-added goods are often the most profitable items on a farm or ranch, insured revenue for these activities is a huge win for diversified farm and ranch businesses. This policy is designed specifically for small farm or ranch operations that have lower bandwidth for reporting requirements (which we will cover later).

Try this: Reflecting on your Revenue Streams (15-minute exercise)

What are the revenue streams on your farm, and which one(s) feel important enough to insure? You can pull out your Schedule F or profit and loss statement to work through the following prompts:

1. List out all your revenue-generating activities.
2. Approximate what percentage of your total revenue each activity accounts for. Write that percentage down next to each activity.
3. Using the information we just covered, make an educated guess at which of your revenue streams would be considered allowable revenue. Put a checkmark next to each activity that you think would be covered. Hint: if it’s something you produced from a product grown on your farm or purchased for resale in your operation, you can guess it is covered at this point.

Reflect: What percentage of your revenue is potentially eligible for WFRP coverage? How does it feel to know you could receive compensation if some or all of this revenue were lost? If it feels exciting, comforting, intriguing, etc., then please read on. If your gut instinct is resisting, it’s good to note that. Keep reading to see if your thoughts change or if the feeling persists.

When you experience crop failure, a fire, or production delays that affect your income a loss adjuster will check to make sure that your lost revenue falls under your allowable revenue. But they will also be looking at the cause of the lost revenue to make sure it is a covered peril. Perils are the legal word for the bad things that could destroy your crops and livestock. Let’s explore.

What perils are insured under WFRP?

As we touched on above with Farmer Laura, WFRP is most likely to cover lost revenue when the revenue loss was caused by unavoidable natural causes. Weather events usually fall neatly into the unavoidable natural category. But beyond that, the line between natural/unnatural and avoidable/unavoidable can be blurry. Generally, if you lost revenue due to the actions of a person then the loss may not be covered by insurance. For example, a lightning storm during the dry season starts a wildfire that wipes out your crops. That is natural and unavoidable and likely would be covered by insurance. But if the fire was the result of arson? Probably not covered.

To get a better idea of what perils are covered by WFRP, it’s helpful to look at some of the perils that are explicitly excluded from coverage. Note: this is not an exhaustive list– it’s just meant to illustrate what the insurer would consider an avoidable and unnatural peril.

• Negligence or mismanagement by you (the policyholder) or any of your employees, contractors, and family members that results in decreased revenue
• An action by any person that affects the revenue on the farm (such as a neighbor spraying chemicals that affect your products) that results in decreased revenue
• Failure to follow Good Farming Practices (GFP). Currently, the USDA may not consider a practice that reduces yield to be a GFP.
• Damage to machinery or equipment that results in decreased revenue
• Theft or vandalism of an insured product that results in decreased revenue
• Lack of labor to properly care for insured products
• Inability to receive a price for an insured product that is reflective of local market value

Again, there are more excluded perils than what’s included on the list above. But let’s use the examples above to try to understand how the unavoidable and natural distinction applies to perils you face at your farm or ranch.

Try this: What perils are you facing? (15-minute exercise)

1. Set a timer for three minutes. Thinking of the revenue streams you listed above, write out a list of perils that could endanger those revenue streams. Try to keep your pen moving for the full three minutes by writing down whatever comes to mind: labor shortages, tidal waves, swarms of locusts. Stop at 3 minutes.
2. With the information we just covered, consider if each peril you listed would be considered an unavoidable natural cause. Put a check next to each peril that you think would be covered by WFRP.
3. Looking at your list, choose the top five perils that feel most real and concerning for your operation.

Reflect: are the perils that are most concerning to you likely covered by WFRP? If the answer is yes or unsure, stay with us. If the answer is no (maybe you really want property or liability insurance) check out the Insurance and Liability section of our library for more resources.

At this point, we’ve given you a lot of information about how WFRP might help your operation. Hopefully, you have a growing sense of whether or not WFRP is a good fit for your risk management needs. Before we go any further, let’s make sure you’re eligible!

What are the eligibility requirements for WFRP?

There are a few eligibility requirements for WFRP. As you review the lists below, check off each requirement that you feel you meet. If you don’t meet a requirement, make a note of when you will meet the requirement and plan to revisit WFRP insurance at that time. To qualify for WFRP you must:

• Be a U.S. citizen or resident
• Provide 3-5 consecutive years of Schedule F or other farm tax forms
• Have no more than $17 million in insured revenue
• Have no more than 50% of total revenue from products purchased for resale
• Meet diversification requirements by producing two or more commodities

As we mentioned above, there are slightly different eligibility requirements for Micro Farm, the WFRP policy is designed for small operations. In addition to the list above, Micro Farm requires that applicants:

• Have no more than $350,000 of approved revenue ( this is instead of the $17 million above)
• Have no other Federal crop insurance policies

Are you eligible and interested in WFRP? That’s great! Before you head out to purchase a policy, there are a few things to be aware of.

What does it take to get WFRP?

WFRP can help small diversified farms survive and thrive during increasing market volatility and weather extremes. Let’s talk about what it takes to secure a policy:

• Complete required paperwork: A revenue-based policy like WFRP requires significant documentation. A farmer’s insurable revenue needs to be established using tax records from past seasons. Producers will also need to submit documentation of their pricing and production for the coming season, as well as plans for any expanded revenue. The Micro Farm option has a reduced paperwork burden compared to the broader WFRP policy.

Check-in: What is your capacity for paperwork like? Have you filed a Schedule F and are your books orderly enough to run the necessary reports?</blockquote

• Pay the premium: For farms just scraping by, it can be hard to set aside money for insurance. Premiums for WFRP will vary based on revenue, production, and location. Premiums are calculated as a percentage of the insured revenue, and the rate can vary from a low of 3% to 16% or higher depending on what you are producing, where, and what percentage of your revenue each product comprises. The RMA Cost Estimator tool helps producers get an idea of what a policy would cost- be sure to try a variety of scenarios to get the best range of prices for a specific operation.

Check-in: How much revenue do you already lose from unavoidable natural causes? How do you expect increasing climate stress, pests, and disease to affect your revenue in coming years? What are your thoughts on proactively using that dollar figure on insurance?

• Locate an insurance agent: WFRP is a relatively new insurance policy. In fact, the USDA still considers it a pilot program. As such, many crop insurance agents don’t even know about the program– even though it is available in all counties in all 50 states! Farmers or ranchers seeking WFRP coverage may find themselves needing to educate their crop insurance agent on the policy. Other farmers may find an agent who is knowledgeable, but is hesitant to sell a policy to them because of the unique paperwork burden (which affects insurance agents as well as policy-holders).

Check-in: does it feel worthwhile to take the time to find and potentially educate an insurance agent on WFRP, providing them with factsheets as well as key points from your own understanding?

If you feel that WFRP holds promise for your operation, the next step is to find an insurance agent to sell you a policy. Turn to peers, extension agents, and local listservs to help you find someone you feel good about starting a relationship with. Remember: WFRP was made for you and it is your right to claim it as a risk-management tool for your operation. Congratulations on equipping yourself with the information you need to make informed business decisions for your farm or ranch!