Insuring New Crops Obstacles & Insights

Doug Hagel USDA Risk Management Agency

Obstacles – Feasibility Is Important!

 For a crop to qualify for coverage under the Federal Crop Insurance program a number of criteria have to be met:  Producer need and demand for an insurance product.

 Production practices – ensure such practices follow University recommendations to guarantee a viable crop stand.

 Strong and stable market – determine if there is any market risk, is there a possibility the crop insurance program could be at risk if market demand diminishes.

 Availability of yield and price data – at least several years of yield and price data must be available to determine a level of coverage that is fair to both the producer and taxpayer.

 Risk exposure involved in growing the crop (low, average or high).

 Actuarial soundness – every program proposal must meet this requirement of the Federal Crop Insurance Act.

Congressional Action

   2008 Farm Bill directed the Risk Management Agency (RMA) to offer contracts with qualified entities to carry out research and development of a crop insurance policy to insure dedicated energy crops.

The Bill instructs RMA to research and evaluate the effectiveness of risk management tools for dedicated energy crops, including policies and plans of insurance that;   Are based on market prices and yields, Sufficient data exists to develop a policy based on market prices and yields, the policies and plans of insurance based on the use of weather or rainfall indices to protect the interest of crop producers, and  Provide protection for production or revenue losses or both.‖ Montana Senator Jon Tester inserted language in the Farm Bill authorizing RMA to establish a Camelina pilot crop insurance program as soon as practicable.

Camelina Background

      Camelina is an oilseed crop grown in the northern and western plains regions of the United States. It is a short seasoned, annual plant that grows one to three feet tall at maturity, requires low inputs and is a rotation crop for wheat or other small grains that can be established on marginally productive land. Each camelina seed contains approximately 30 to 40 percent oil compared to the 20 percent contained in soybeans. Recently, camelina has been produced for biofuels and bio-based products – most notably, the U.S. Navy is using camelina biodiesel in its jet fuels, providing significant market potential. A few private companies have entered into the market as processors or first handlers, and most sign contracts with growers for oilseed production at a fixed price. Also, the camelina meal leftover from biodiesel production was recently approved by the United States Food and Drug Administration (FDA) for use in livestock feed rations.

RMA Research and Development of Policies

   RMA’s first attempt at a crop insurance program was to develop an area based program that determined losses by rainfall or satellite data indicating growing conditions on the ground.

RMA regularly awards contracts to private sector firms or educational entities for market research, program evaluation, and product development services to assist RMA in maintaining and expanding FCIC's crop insurance portfolio. RMA awarded a contract in 2009 – solicitor worked with camelina industry, producers and processors for over a year on both rainfall and satellite area programs – in the end producers rejected both concepts.

Private Company Proposal

   January 2010 – two companies partnered, Crop Insurance Systems Inc. and the Great Plains Oil and Exploration LLC and submitted to RMA a Camelina pilot program Concept Proposal Received approval and later followed with a full product submission, which was approved by the FCIC Board on September 22, 2011. The Camelina program was released by RMA on December 1, 2011 to begin with the 2012 crop year, insurance coverage is available to camelina growers in 41counties in Montana and 11 in North Dakota.

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Camelina Crop Insurance Program

The camelina plan of insurance is based on a growers Actual Production History (APH), and insures a percentage of the grower's yield. The price election used to determine the guarantee is the price per pound stipulated in the processor contract (without regard to discounts or incentives). Only spring-planted camelina grown under contract with a processor will be eligible for coverage – the contract must state:  The producer's commitment to plant and grow camelina and to deliver the production to the processor,  The processor's commitment to purchase all production stated in the processor contract, and  A base contract price (however, insurance price election will not be allowed to exceed an amount specified in the Crop Insurance Special Provisions).  If the number of insurable planted acres is greater than the maximum allowable acres in the processor contract, the crop insurance production guarantee is reduced by an "over-planting factor." A single basic unit will be offered; multiple basic units or optional units are not available. Insurable causes of loss will include: adverse weather, fire, wildlife, earthquake, volcanic eruption, and insect and plant disease but not damage due to insufficient or improper application of pest or disease control measures. Neither written agreements nor prevented planting will be available for camelina. Coverage levels offered will be from 50 to 65 percent.

Bio-fuel Future

     Biofuel from camelina is an ideal jet fuel substitute. USDA's Agricultural Research Service (ARS) scientists have long-term studies underway to examine ways to use camelina as a bioenergy crop for producing jet fuel for the military and the aviation industry. In 2010, USDA partnered with the Boeing Corporation and the Air Transportation Association on an initiative to bring sustainable and renewable aviation fuels to the marketplace. In January of 2011 USDA announced two Biomass Crop Assistance Program (BCAP) project areas devoted to developing camelina as biofuel in several states, including Montana. USDA is also part of several partnerships to develop oilseeds and native and perennial grasses as a biofuels.

Also in January 2011, USDA and the Department of the Navy signed a memorandum of understanding (MOU) to encourage development and use of aviation biofuels. In August of 2011, USDA, the Navy and the Department of Energy announced a partnership to invest up to $510 million during the next three years in partnership with the private sector to produce advanced drop-in aviation and marine biofuels to power military and commercial transportation. The initiative responds to a directive from President Obama issued in March 2011 as part of his Blueprint for A Secure Energy Future, the Administration's framework for reducing dependence on foreign oil.

Questions?