Multiple-peril crop insurance (MPCI) provides farmers with protection against losses due to weather and other perils for more than 100 crops across the country. Though it varies widely by policy and depends largely on the type of crop insured, some examples of covered hazards include damages from adverse weather, natural disasters, insect infestation, disease, and wildlife damage.
MPCI will never cover losses resulting from irresponsible farming practices, low prices, or theft, though depending on the crop, it may cover costs of late planting, replanting, poor-quality yields, and low yields.
A Public-Private Partnership
The U.S. Department of Agriculture (USDA) manages MPCI through a public-private partnership, meaning the federal government subsidizes the premiums, but private companies write all MPCI policies. A full list of providers is available at the USDA website, www.usda.gov.
The USDA requires these companies to sell MPCI policies to any eligible farmer who requests it, and the USDA Risk Management Agency (RMA) uniformly sets all the rates and determines what crops may be insured in which regions of the country.
The RMA calculates the amount of MPCI coverage based on the actual production history (APH) for each farm. APH numbers come from farmer production records from the past four, and up to the past 10, consecutive crop years. Coverage levels generally range from 50 to 75 percent of the farm’s APH. The USDA RMA grants up to 85 percent coverage for select crops in certain counties.
An MPCI policy also requires election of an indemnity price, which can be anywhere between 60 and 100 percent of the Federal Crop Insurance Corporation (FCIC) expected market price. Indemnities are paid when the grower’s yield falls below the calculated yield guarantee (APH times the insured acreage times the level of coverage times the farmer’s elected share).
Electing a higher indemnity price will result in higher indemnity payments and more expensive premiums. In years with low yields, or in the event of loss, the compensation will be much greater.
The When and the Why
Unlike a crop-hail insurance policy, which farmers may purchase at any time during the growing season, you must purchase an MPCI policy prior to planting. It is a continuous policy that will remain in effect for each crop year following acceptance of the original application. Farmers may change the policy on or before the sales closing date, and cancellations may only be made after the first effective crop year.
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The Importance of Investing in Crop Insurance
There are several reasons to carefully consider investing in crop insurance, or if you already have it, re-evaluating your current coverage.
Staying in Business
The biggest reason to invest in crop insurance is to make sure you turn a profit every year. What makes crops especially difficult to insure is their survival depends on a completely unpredictable factor: the weather. In any given year, you never know what perils your crops will face. Cold, frost, and freezing temperatures cause an average of one-third of all recorded crop losses annually.
Would your farm be able to survive if your crops were completely wiped out by frost, disease, drought, excess moisture, hail, insects, or other natural disasters? Just purchasing a policy is not enough – you must evaluate your risks and accurately determine whether the protection will adequately cover severe loss.
Capitalizing on Marketing Opportunity
In many ways, crop insurance allows businesses to expand by taking advantage of new opportunities. Farmers who insure their crops have the ability to engage in long-term business planning because of the relative stability of their cash flow.
In the unpredictable agricultural business, being able to calculate your revenue even in the case of a loss is invaluable. You will have the security to market your crops and take advantage of market opportunities that uninsured farmers may miss out on.
Investing in Your Company’s Future
One of the less obvious benefits of investing in crop insurance is you are also investing in your company’s future. Crop insurance allows farmers to borrow money more easily because it proves to lenders the ability to repay loans.
With the ability to borrow money comes access to new technology and innovation, which increases your potential for even higher yields, better products, and further growth.
Before you dismiss crop insurance as a financial burden, think of it as an investment. It gives confidence, stability, improved financial management, and comfort in knowing there is a safety net for unexpected loss and associated costs. Contact us to learn more about your crop insurance options.