AGR-Lite Crop Insurance Plan Now Available for Nevada Producers

 

Agriculture Secretary Mike Johanns recently announced the availability of the Adjusted Gross Revenue-Lite (AGR-Lite) plan of crop insurance for Nevada producers. "This insurance is a useful risk management tool, particularly for small diversified producers," said Johanns. "It is based on individual farm revenue, so producers are offered a great deal of flexibility in how they manage their farm or ranch operations."

 

AGR-Lite is a whole-farm revenue plan of insurance providing protection against reduced revenues due to unavoidable natural disasters and market fluctuations. Policies can have a maximum liability of $1 million annually, and most farm-raised crops, animals, and animal products are eligible for protection. AGR-Lite uses a producer's 5-year historical farm average revenue, as reported on IRS tax returns (Schedule F or equivalent forms) and the current year's farm plan, as a basis to provide a level of guaranteed revenue for the insurance period. The AGR-Lite plan can stand alone or be used in conjunction with most other federal crop insurance plans. It provides insurance coverage for multiple agricultural commodities under one insurance product and establishes revenue as a common denominator of insurance for all agricultural commodities on that farm.

 

Program History

AGR-Lite was developed by the Pennsylvania Department of Agriculture and first became available in Pennsylvania in 2003. In 2004, the program was expanded to cover 12 more New England states, and in 2005, the program was expanded to 5 additional states. Now, for 2007, the program will become available to producers in 10 more states (28 states total). 

 

After being introduced with an annual liability limit of $250,000, the plan now has a $1 million liability limit, ensuring eligibility for all but Nevada’s very largest producers. Unlike the similar Adjusted Gross Revenue (AGR) Program, AGR-Lite offers expanded eligibility and coverage for producers of livestock commodities. 

 

Program Benefits and Requirements

The AGR-Lite Program is available to producers in all Nevada counties, and premiums are subsidized at 48%, 55%, or 59% for coverage levels of 80%, 75%, and 65%, respectively. Covered causes of loss are broad and include unavoidable natural occurrences and/or market fluctuations. AGR-Lite covers a range of commodities, including organic and directly marketed commodities, that are otherwise generally uninsurable.

 

Producers must select a coverage level (65%, 75%, or 80%) that governs when an indemnity payment begins. Producers must also select a payment rate (75% or 90%) to determine how much the producer will be paid for each dollar lost under the coverage level. Participation at the 80% coverage level requires substantial production of three or more commodities. To participate, a producer must submit five years of continuous, verifiable tax returns for the same entity.

 

Program Limitations

The AGR-Light plan is widely considered to have two major limitations:

•  First, the program insures gross revenue, not net income, and does not allow adjustments for increased expenses (such as purchased feed). Therefore, if a Nevada livestock producer were forced to make an unplanned hay purchase due to drought, the event would reduce net income, but not gross (insured) revenue.
• Second, the progam’s maximum net coverage levels (equal to 72% of revenues for a producer of three commodities with an 80% coverage level and 90% payment rate) are inadequate for the needs of some producers.

Nevertheless, with limited federal crop insurance coverage options available, Nevada livestock producers should carefully consider the program’s benefits and limitations.

 

Participation Example

To better understand how AGR-Lite could work for a Nevada operation, consider the following scenario:

A cow-calf operation near Fallon also producers and sells some alfalfa each year. The operation’s five-year average annual revenues and current-year plan indicate expected gross revenues of $200,000 (typically $180,000 from cattle and $20,000 from hay). The operator buys an AGR-Lite Policy at a 75% coverage level with a 90% payment rate. The policy’s total potential liability is $135,000 ($200,000 gross revenue X 75% coverage level X 90% payment rate). The subsidized policy premium would cost the producer around $5,500, and the payment would be required at the end of the insurance year.

Assume that market conditions and weather events cause the operation’s annual revenues to total only $130,000. The revenue loss would equal $20,000 ($150,000 - $130,000), and the indemnity payment would equal $18,000 ($20,000 X 90%). As a result of the AGR-Lite insurance, the operation’s net revenues (after subtracting the premium payment) would total $142,500 instead of $130,000.

 

For another example, consider a more diversified operation:  

A farm near Ely runs cattle and grows hay and corn. The operation’s five-year average annual revenues and current-year plan indicate expected gross revenues of $100,000 (typically $70,000 from cattle, $15,000 from hay, and $15,000 from corn). The operator buys an AGR-Lite Policy at an 80% coverage level with a 90% payment rate. The producer can select the 80% coverage level because he grows three or more commodities. The policy’s total potential liability is $72,000 ($100,000 gross revenue X 80% coverage level X 90% payment rate). The subsidized policy premium would cost the producer around $4,300, and the payment would be required at the end of the insurance year.

Assume that market conditions and weather events cause the operation’s annual revenues to total only $60,000. The revenue loss would equal $12,000 ($72,000 - $60,000), and the indemnity payment would equal $8,400 ($12,000 X 90%). As a result of the AGR-Lite insurance, the operation’s net revenues would total $64,100 instead of $60,000.

 

Sign-Up Deadline

Producers interested in participating in the AGR-Lite program should contact a crop insurance agent immediately as the sign-up process for 2007 coverage must be completed by March 15, 2007. RMA provides an online crop agent locator tool (http://www3.rma.usda.gov/apps/agents/) or RMA’s Davis, CA, Regional Office (530-792-5870) can help producers find a local crop insurance agent.

 

For More Information

Federal Crop Insurance programs are administered by the USDA’s Risk Management Agency, which maintains a Regional Office in Davis, CA. Producers can contact the Davis Regional Office by calling 530-792-5870. RMA-sponsored crop insurance education programs for Nevada producers are conducted by Custom Ag Solutions (CAS) (877-227-8094). CAS and RMA will hold over 20 crop insurance education sessions in locations across Nevada beginning in January of 2007. Detailed information about AGR-Lite and other crop insurance programs is available on the internet: http://www.rma.usda.gov/ and http://www.nevadaagrisk.com/.