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Pasture, Rangeland, and Forage Rainfall Index Insurance Jayson K. Harper Professor of agricultural economics Department of Agricultural Economics and Rural Sociology The Pennsylvania State University Penn State is committed to affirmative action, equal opportunity, and the diversity of its workforce Multi-Peril Crop Insurance (MPCI) • Objective - provide protection options that will make it possible for producer to survive a disaster and return to profitability • USDA’s primary risk management program • Highly subsidized by USDA (about 2/3 of total cost) • Flexible program designed to meet the needs of individual farming operations Crops covered by MPCI in Pennsylvania: • • • • • • • • • • • • apples (43) barley (54) processing beans (10) cabbage (1) corn (grain and silage) (66) forage production (29) forage seedling (13) grain sorghum (57) grapes (1) green peas (10) nursery (67) oats (66) • • • • • • • • • • • peaches (23) pears (1) potatoes (10) soybeans (49) fresh-mkt. sweet corn (67) processing sweet corn (12) tobacco (3) fresh-market tomatoes (4) processing tomatoes (12) wheat (57) winter squash (2) Insurance Products Available • • • • • • • Actual Production History (APH) Catastrophic (CAT) Coverage Crop Revenue Coverage (CRC) Index Income Protection (IIP) Dollar Plan (Dollar) Whole-farm revenue coverage (AGR-Lite) Group Risk (GRP) Rainfall Index Pilot Program • Group Risk Program available in select counties in Colorado, Idaho, Texas, North Dakota, South Carolina, and Pennsylvania New in 2007: Pasture and Forage Pilot Programs • Rainfall index- Southwestern PA • Vegetation index- Northeastern PA Pasture, Rangeland, and Forage Rainfall Index Insurance-Program Overview • GRP program • Goal – utilize an existing policy type – Capitalize on current program familiarity – Increase marketability and effectiveness • The resulting design is based on the principles of the existing GRP program Rainfall Index • Why use an index? • Lack of actual producer/industry production data • No consistent and sound methodology for measuring production for the crop • The deviation from long-term normal precipitation is used to establish the index – SINGLE PERIL COVERAGE • Precipitation has a high degree of correlation to forage production Data for Rainfall Index • NOAA data • Primary index difference – Based on NOAA data and NASS county yields • Widely used and dependable source of precipitation information • Long data history – since 1948 • Consistent and universal coverage through a uniform grid system – Grid boundaries vs. county boundaries Choice 1: Forage Types Covered • Pasture/Grazingland – Established acreage of perennial forage – Intended for grazing by livestock – Acreage must be suitable for grazing • Hayland – Established acreage of perennial forage – Intended for haying – Acreage must be suitable for haying • Program covers all types of grazing and haying forage (i.e. not just for alfalfa) Choice 2: How much acreage can I cover? • Not required to insure 100% of acreage • Forage utilized in the annual grazing or hay cycle can be insured without insuring all acreage • All acres within a property may not be productive, e.g., rocky areas, submerged areas • Provides additional flexibility for the insured to design the coverage to his specific needs • Because the program is a group program and other programs are not available, there is no opportunity to ‘move’ production Advantages of Program • Flexible- separate index intervals • Covers predominant peril- rainfall • Timely payment of indemnities- individual loss adjustments not needed • Easily understood Index • Production records not required Choice 3: Index Intervals • • • • • Multiple intervals offered – 6 (starts in February/March) Crop year divided into 6, 2-month intervals for each grid Similar cropping practices Ability for producers to manage appropriate timing risks – Match individual growth patterns and production seasons The 2-month intervals provide for greater reaction to precipitation events vs. a yearly average Index Intervals INDEX INTERVALS Index Interval I Index Interval II Index Interval III Index Interval IV Index Interval V Index Interval VI I II START DATE February 1 April 1 June 1 August 1 October 1 December 1 III IV END DATE March 31 May 31 July 31 September 30 November 30 January 31 V VI Choice 4: Coverage Levels • Percentages available: 90, 85, 80, 75, and 70 • Consistent with other GRP programs • Catastrophic Risk Protection (CAT) not currently available • Producers are still eligible for NAP coverage What you need to do: Find your insurance grid • Area of insurance = 0.25° grids • Grids vs. County • Grids are approximately 12 x 12 miles in size • Provides for a consistent program across the United States • Counties vary in size, but the grids do not • Grid size reduces basis risk vs. county size – Allows for closer correlation to individual experience • Grids will cross county and state lines Determining Grid ID(s) – Basic Steps http://prfri-rma-map.tamu.edu/ • Type in the city and/or county name where your property is located • Select the city or county from the possible matches, a topographic map for the area will be displayed • Narrow the search by selecting an area near the actual location of your property • Once you have located the general area, it is recommended you continue to refine the search by switching to the photo maps • Using the topographic map, photo map, or combination of both, choose an appropriate resolution for proper identification of the property boundaries and corresponding Grid ID(s) Topographical Map http://prfri-rma-map.tamu.edu/ Photo Map (http://prfri-rma-map.tamu.edu/) Determining Grid ID(s) – Additional Steps http://prfri-rma-map.tamu.edu/ • Select one point of reference on your property by moving the cross marker (‘+’) to that location – Grid ID is listed at the top of the screen (and on the map itself) • A Print Icon is in the lower right hand corner of the screen – This printed map can be used as a record to verify the Grid ID – Once printed, the property boundary can also be outlined and initialed by the insured for verification purposes • To obtain insurance you must certify the point of reference PRF - Rainfall Index Decision Tool http://agforceusa.com/rma/ri/prf/dst – Not required to buy insurance – Provides estimates – Values are based on current information to derive historical estimates of indemnity, premium, and subsidy numbers – May not match the official figures released by FCIC in past years – Contact a qualified insurance agent for actual premium quotes Decision Tool: Example http://agforceusa.com/rma/ri/prf/dst Selections made by by user Acreages assigned by user Data on county base value and subsidy Data on Insurance cost and indemnities Should I buy crop insurance? • Yield variability • Cash flow requirements • Self insurance • CAT coverage • Premium discounts for higher levels of coverage • Whole-farm coverage (AGR/AGR-Lite) Sales closing dates JANUARY 31-- AGR insurance MARCH 15-- spring seeded crops MAY 31– nursery crops JULY 31-- forage seedings SEPTEMBER 30-- fall seeded crops NOVEMBER 20-- fruit crops NOVEMBER 30-- GRP insurance For more information, visit the Penn State Crop Insurance Education Web Site: http://cropins.aers.psu.edu