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Article # 2 |
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by Bob Parsons, UVM Extension Farmers concentrate the majority of their efforts on production and thus are most familiar with forces that affect their expected yield or production levels including weather, pests, diseases, use of technology, genetics, machinery efficiency and the amount and quality of inputs. Vermont farmers have traditionally been very resourceful and have dealt successfully with these factors over time. However, with greater emphasis toward specialized production, farmers
now have access to some new tools that can reduce their risk to factors
that impact production. For example, if a farmer determines that his greatest chance of incurring a crop loss is from drought, the logical step to reduce that risk is to use irrigation. But in the case where irrigation is not available, the farmer will likely reduce the risk of loss from drought by planting crops that are more tolerant of dry conditions. But when irrigation is not available, there are few steps the farmer can take beyond praying for rain. These are the options we want to discuss. In Vermont, production risk has taken a different twist over recent years because of the trend toward specialization. In the past, farmers' reduced production risk through diversification, raising different crops that were then fed to dairy cattle, hogs, and chickens. But specialization has made diversification a non-option for many Vermont farmers because of their specialized equipment and financial commitment. The question for all specialized producers is "Do I need to reduce my
production risk?" and if I do, "What tools are available today that would
reduce my exposure to production risk?" Some older, well-established farmers can usually withstand a crop disaster. But on the other hand, if you are in your 30s, are carrying a lot of debt, trying to raise a young family, expanding your farm operation, and have 100 places to invest every extra dollar you have, then your exposure to risk is much different and one minor crop disaster can threaten the future of your business. Your need to plan and protect your farming operation from production risk is much greater than that of your established neighbor. In fact, your future will likely depend on your actions today. There are several common conservative strategies that have been used in the past but these are not viable for most farmers. Farmers could amass enough cash to self-insure against crop disasters. Another option is to overproduce to assure you have enough feed or produce to sell. But, lets face the facts, with the high capitalization requirements of
today's farms, few farmers are able to amass enough extra cash or can
afford the luxury of extra production. Another option is to maintain a
line of credit to borrow against in case of a crop loss. But loans always
have to be paid back. So what other options are available? However, crop insurance has recently undergone several changes that make it more viable for today's farmers. Crop insurance has become more appealing due to greater support from the USDA that has lowered rates considerably. Crop insurance is now covering more crops that are grown on Vermont farms. Does this mean crop insurance is for you? That decision is up to you
but first let's consider how crop insurance works. Think about your life insurance. Are you disappointed each night because another day went by and you didn't get to collect on your life insurance policy? The same is true of crop insurance. You are better off if you never have to collect on crop insurance because that means you did not incur a crop loss. You lost the premium but you have the assurance that you are covered if a loss does occur. Several types of crop insurance are available for some Vermont crops. Farmers can take a base level coverage (Multiple Peril Crop Insurance) that covers against a 50% loss for an administrative cost. Farmers also have the option of taking additional coverage at additional cost that is still subsidized by the USDA. Think of your car insurance as an example. You can carry $1000 deductible collision insurance that is much cheaper than $250 deductible. You collect indemnity payments for the portion of a crop that is covered by insurance. If you want greater coverage, you pay a higher premium. Other crop insurance options include Crop Revenue Coverage that protects both against yield and price losses. This insurance protects against crop losses and against a downturn in commodity prices. Other programs being offered on a trial basis are Income Protection, Revenue Assurance, and Adjusted Gross Revenue Insurance. These programs are based more on protecting income and can prevent large variations in income because of crop losses or market losses. Deciding whether to use crop insurance is a decision for individual farmers. What can you afford to lose from a crop disaster? Have you taken every precaution to reduce any chance of experiencing crop losses? If you cannot afford to take the chance of a loss, then maybe crop insurance is something you should check into. Ask if your crops are covered. Corn, grain crops, and most fruits and some vegetables are covered in
Vermont. Ask what is the cost for different levels of coverage. Is the
cost worth the potential risk of not carrying insurance? These are only
questions that individual farmers can ask and answer. There is a cost but the cost is much cheaper than putting the entire
farm at risk. The decision is your's but now you do have different options
that were not previously available to farmers. For more information on risk management and crop insurance you can contact
Louise Waterman at the Vermont Department of Agriculture at (802) 828-6900
or e-mail waterman@agr.state.vt.us
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