Climate Change and Fiscal Sustainability: Conservation and Risk Management Programs

by HeatherManzo, Penn State Extension Educator, Allegheny County

This article is the last in a four-part series for Passages discussing how the agricultural community can better understand and address a changing climate. PASA, in partnership with Penn State, was awarded a U.S. EPA Environmental Justice grant (#96335501) for educational programs related to climate change and agriculture. This grant supports this Passages series, several field days and webinars, and pre-conference tracks at the recent 25^th Farming for the Future conference. Join us as we explore Farming in a Changing Climate.

This last article in the series highlights the fiscal sustainability of farms by providing an overview of crop insurance, conservation and risk management programs available through the USDA.

 

The Farm Bill is renewed every five years in order to reflect the changing needs of the agricultural community. This cycle includes specialty funding for small, new, low resourced, organic, minority and urban farms₁. USDA is comprised of many agencies, which are interested in reaching these non-traditional types of agricultural operations in addition to traditional large-scale agriculture and commodity operations. The goal of this article is provide an overview the agencies and allocations available to farming operations of all sizes and styles.

Predicting weather has always been a part of the delicate dance of farming and the seasons. It is true that working with nature via sustainable farming practices such as soil building, contouring and cover crops can help increase the resiliency of a farm in the face of a changing climate. However, farm income can be lost by unforeseen natural disasters such as severe storms; prolonged weather events like drought can reduce yields by destroying crops, land and infrastructure. Farms are a business and crops are the inventory and that value must be protected in order to allow for fiscal survival when natural events occur. This is the premise for crop insurance, which is just one program available to support fiscal sustainability.

Climate related weather events are costly, and on the rise, so much so that the National Oceanic and Atmospheric Administration (NOAA) created a searchable online database known as ‘The Billion Dollar Club’₂. This resource tracks weather and climate related events such as super storms, winter storms, floods, and wildfires that cause US$1 Billion or more in damage, of which there were ten in 2015 alone, and three of those occurred in Pennsylvania. These ten events caused 155 deaths and economic devastation in many sectors. Climate change scientists at Columbia University’s Earth Institute and Tufts University are currently analyzing data to understand what agriculture looks like in Pennsylvania under various climate change models, in order to understand what opportunities and interventions farmers may consider as part of the USDA Agriculture and Food Research Initiative (AFRI) funded Enhancing Food Security in the Northeast (EFSNE) grant₃.

A recent example of crop damage attributable to weather fluctuations which will likely hit home for many readers is the damage fruit trees suffered in April 2016. A warm March was followed by hard frost and freeze in some areas of the state. NOAA classified the 2015-2016 winter as the warmest on record in the lower 48 states with the average temperature across the US 4.6°F higher than the average temperature recorded in the last 100 years₄. It is too early to tell the extent of the yield and related economic impacts will be from this weather event. According to early estimates of yield impact from the Penn State Fruit Research and Extension Center in Biglerville, Adams County, fruit growers are expecting 85-90 percent of a full crop of apples, 75-80 percent of a full crop of peaches and 50 percent of a full crop of tart cherries₅. Damage was most significant to apricots, plums and pears due to early dormancy breaks, with peaches and apples fairing slightly better₆.

According to the 2012 PA Ag Census, agriculture in PA is valued at US$7.4 Billion annually, and $160 Million of that comes from tree products including fruit and nuts₇. The economic and social impact of all agricultural efforts shapes the fabric of our communities and the landscape that Pennsylvanians call home. This is recognized by the federal government via allocations programs designed to protect the industry, primarily through the United States Department of Agriculture (USDA). Farms and businesses wanting to apply for federal grants and contracts simply need to obtain System for Award Management (SAM) and Duns & Bradstreet (DUNS) numbers, which are free via a short form and take a couple of weeks to process. Let’s examine some of those programs.

Overview of USDA Agencies and Selected Programs

The United States Department of Agriculture (USDA) is the federal executive body responsible for developing and implementing policy and funding programs related to forestry, agriculture, food and farming. The following departments are under their purview; note this is not an exhaustive list:

Natural Resources Conservation Service (NRCS)

The Natural Resources Conservation Service provides technical and financial assistance to farmers by working with them on the ground on projects that focus on conservation and the use of technology to improve farm systems. NRCS’s mission is “helping people help the land.” Staff is available to visit farms, get to know the farm and provide consulting on operations as well as suggest appropriate programs. NRCS receives its budget through an allocation system from the federal government to each state. In Pennsylvania, NRCS has regional offices which cover every county, and staff welcomes new relationships with farms and a variety of other land holders.

NRCS programs often operate on an ‘in kind’ basis, meaning that the farmer matches the award amount with equipment, labor and other non-monetary contributions to the project. The farm then receives payments according to an NRCS schedule at agreed upon project milestones. There are many programs available, and when a match is not found with NRCS, there are often resources available through the Farm Service Agency (FSA), and farmers and landholders are encouraged to think of these sister agencies when developing the support network for their business and to be proactive about relationship building. Some NCRS programs of note include:

Agricultural Management Assistance (AMA)

The goal of this program is to reduce risk in production by voluntarily addressing water management, water quality and erosion control by incorporating conservation into farming operations. Farms can have sales of over $1,000, and an implementation cost of 75 percent up to $50,000.

Conservation Stewardship Program (CSP)

This program assists land owners to maintain existing conservation efforts and adopt new conservation efforts including: water, energy, soil, air and habitat. Payments are performance based; contracts are five years with a $200k cap.

Conservation Innovation Grants (CIG)

As the name implies, CIG support development and adoption of innovative approaches and technology to improve conservation of agricultural land.  This grant is flexible in that any project proposal that ties back to that goal of improving conservation may be considered. EQIP is a funding vehicle under the CIG umbrella. Funding levels up to $75k per project with a 50/50 match, therefore a total project of $150k can be accepted.

Environmental Quality Incentives Program (EQIP)

EQIP is commonly known as the high tunnel grant’ because it commonly supports high tunnel projects. The mission of this grant is more expansive that that—its goal is for farms to adopt technology practices and planning to increase growing efficiency through improving wate and air quality, reducing erosion and sedimentation,  and improving created habitat. This grant has ten year contracts, and special incentives for beginning, socially disadvantaged and limited resource farmers. For these categories of growers, up to 50 percent advance on project materials/services is possible to get the project off of the ground.

Farm Service Agency (FSA)

Often, if a match is not found with NRCS, the Farm Service Agency is the next stop. FSA programs are designed to help small farmers to access funds through its microloan and other programs.

 

Rural Development (RD)

The role of USDA Rural Development is to improve the economy and quality of life in rural communities through economic development, loans, grants and technical assistance for community empowerment projects. The Value Added Producer Grant Program (VAPG), available annually and usually announced in spring, is a funding option for those looking to add value to farm products, expand marketing, processing and creating new market opportunities for value-added products are goals. Beginning, small and socially disadvantaged farmers and ranchers may receive priority.

Planning grants are up to $75,000 and working capital grants are up to $250,000. The deadlines are July 1, 2016 for paper applications;  June 24, 2016 for electronic applications

 

RMA

The Risk Management Agency administrates and operates many programs, including all crop insurance programs through the Federal Crop Insurance Corporation (FCIC). Crop insurance plans are sold through private insurance agencies in the private sector. The mission of RMA is to strengthen the economic stability of agricultural producers and rural communities through risk management tools.

There are newer crop insurance programs for small, organic, diversified and non-traditional ag production including aquaculture and mushrooms. Insurance for these types of growers have benefits such as: exemption from administrative fees, reduced out-of-pocket premium expenses, additional subsidy, increase in the substitute yield adjustment, and production history from farming operation they have been involved in previously. An overview of several program in these categories follows:

Organic Crop Insurance

This program provides coverage for certified organic acreage as well as transitional acreage, including any crop grown using organic farming practices.

Whole-Farm Revenue Protection

This is a comprehensive insurance program providing a safety net for the entire farm, and was first available in 2015. The program is crop neutral; anything is covered and is available in every county in the U.S. The policy covers levels up to 85 percent of revenue and can be combined with single crop policies.

Noninsured Crop Disaster Assistance Program (NAP)

Crops considered uninsurable under other programs are covered under NAP when low yields, loss of inventory, or prevented planting occur due to natural disasters, excessive heat, insect infestation and plant disease.

Noninsured Crop Disaster Assistance Program (NAP) for Underserved Farmers

Beginning, socially disadvantaged and limited resource farms, and those farms that are organic and sell at direct market prices are able to receive higher coverage levels than under the regular NAP program. The goal is to level the playing field for organic and direct market farmers who have been farming less than 10 years. Additionally the $250 service fee is waived, and policy holders enjoy a 50 percent premium reduction.

 

The business of farming can be just as challenging as difficult weather conditions or pest problems. It can be worthwhile to occasionally think of the farm in business terms. Those crops, animals and farm products are the revenue generator necessary to allow a farm to continue from one season to the next. Build relationships with staff of the mentioned USDA offices and Extension to create a network of professionals dedicated to protecting and preserving your farm.

Sources:

1.2014 Farm Bill http://www.usda.gov/wps/portal/usda/usdahome?navid=farmbill

2. NOAA’s Billion Dollar Weather and Climate Disasters: Table of Events http://www.ncdc.noaa.gov/billions/events

3. USDA AFRI EFSNE - http://agsci.psu.edu/research/food-security/research-projects/production

4. NOAA Winter 2015-2016 weather analysis - http://www.ncdc.noaa.gov/sotc/summary-info/national/201602

5. Penn State Fruit Times and email with FREC staff: http://extension.psu.edu/plants/tree-fruit/news/2016/assessing-fruit-bud-survival-and-crop-potential

6. Lancaster Farming: http://extension.psu.edu/plants/tree-fruit/news/2016/assessing-fruit-bud-survival-and-crop-potential

7. PA Ag Census: http://www.agcensus.usda.gov/Publications/2012/Online_Resources/Rankings_of_Market_Value/Pennsylvania/

What's New in Crop Insurance for 2015?

By Jayson K. Harper, Professor of Agricultural Economics, Penn State University

The answer? A lot.  There have been many new changes coming out of the 2014 Farm Bill, as well as several improvements in recent years that have made crop insurance more flexible and provide additional coverage for your farm.  Some of the changes you should consider for your risk management plan in 2015 include: enterprise units, trend adjusted yields, the supplemental coverage option, and whole-farm revenue insurance.  There have also been improvements made for organic producers, new benefits for beginning farmers, and a provision that allows farmers to exclude extremely low yields due to bad weather from calculation of their Actual Production History (APH).  With the improved NAP (from FSA) with Buy-up protection the 65% coverage level at 100% of established prices, producers can purchase meaningful protection for each crop that they grow.

Remember, the sign-up deadline for spring seeded crops is March 16, 2015.  A list of crop insurance agents who sell crop insurance in Pennsylvania can be found here.

Another important deadline that farmers should be aware of is the deadline for conservation compliance certification.  In order to be eligible for the premium subsidy on crop insurance policies in 2016, farmers must file form AD-1026 (Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification) with FSA by June 1, 2015.

Enterprise Units.  Enterprise units have been available for several years now, but many farmers are not aware of how they work.  When choosing your crop insurance coverage in Pennsylvania you have the choice of basic, optional, or enterprise units.  Your choice of insurance unit will have an impact on your cost of insurance, the likelihood of collecting for losses, and how you will need to keep and report your yield records.

You receive one basic unit for the land you own and cash rent within a county.  You also receive one basic unit for each landlord with whom you crop share rent.  Each crop share landowner can also insure their own interest in the crop as a separate unit.  Each different crop also creates a separate unit, and tracts of land in different counties must be insured as separate units.  Each crop/county can have a different type of policy and level of coverage, and could receive a loss payment separate from the other units.  Separate production records must be kept for each basic unit.  Insuring all acres as basic units entitles producers to a discount on their premiums.

Basic units may be divided into optional units when a crop is being grown under distinctly different production practices.  For example, a grower with both irrigated and non-irrigated acres of the same crop may qualify for optional units.  Other special farming types or practices may also qualify acres to be insured as separate units.  Optional units may also be established by FSA farm serial number or on a section equivalent basis for annual crops.  Optional unites based on section equivalents must be requested through a crop insurance agent, contain a block of land at least one mile square, and be clearly indicated on a map using identifiable boundaries.  Separate APH records must also be kept and reported for each optional unit.  Farmers selecting optional units do not receive the premium discount allowed for basic units.

An enterprise unit combines all of the acres of a single crop within a county in which you have a financial interest into a single unit, regardless of whether they are owned or rented, or how many landlords are involved (separate enterprise unites may be available for irrigated and non-irrigated acreage of a crop).  Because enterprise units are usually larger than basic units or optional units, this would make it less likely that the overall yield in a given year would be low enough to trigger a loss payment.  This is especially true if you have a very large acreage of the insured crop that is widely dispersed.  However, this isn't the case for most Pennsylvania farmers and in many of these situations there is no real difference between choosing basic and enterprise units.  This is important because enterprise units are eligible for additional premium discounts over basic units.

Examples of the cost of both yield protection and revenue protection coverage for a farmer with 130 bushel APH yield in a medium risk county are given in Table 1.  Using basic units rather than option units generally results in a cost savings of around $2 - $4 per acre.  Switching from optional units to enterprise units would result in substantial savings, in some cases up to $15 per acre.  Carefully consider the difference between using basic and enterprise units for your farm; you could reduce your premiums and keep the same level of overall protection.  The cost savings from using enterprise units could also be used to purchase higher levels of coverage for your farm than under either basic or optional units without increasing your farm's crop insurance costs.  For example, if you insured at the 75% level before using either optional or basic units, you could now insure at the 80% level with enterprise units and also save a couple dollars per acre.

Table 1: Example of farmer paid premiums for yield protection and revenue protection coverage by unit structure (130 bu. APH yield, medium risk county)

Coverage level	Yield Protection			Revenue Protection
	Optional	Basic	Enterprise	Optional	Basic	Enterprise
85%	$39.94	$36.34	$27.55	$51.88	$47.85	$36.27
80%	$28.90	$25.34	$15.60	$37.30	$33.28	$20.48
75%	$21.41	$18.04	$9.22	$27.31	$23.49	$12.00
70%	$16.54	$13.38	$6.53	$20.82	$17.19	$8.39
65%	$13.89	$10.76	$5.25	$17.26	$13.71	$6.69
60%	$10.12	$7.50	$4.17	$12.41	$9.44	$5.24
55%	$8.29	$5.88	$3.26	$10.09	$7.40	$4.11
50%	$6.14	$4.14	$2.51	$7.44	$5.23	$3.17

You may not want to use enterprise units if you have variable farms and inconsistent crop production histories, if disease and quality issues appear only on some farms, if the farms are dispersed throughout the county or if you have irrigated and non-irrigated acreage in the same unit.  For many farmers, however, enterprise units could provide a simple way to cut costs and provide additional coverage for their operation.

Trend Adjusted Yields.  Pennsylvania farmers have the option to use trend adjusted (TA) yields to increase their actual production history (APH) yields for corn and soybeans.  This adjustment better reflects increases in yield experienced  by farmers using certain farming practices, including hybrids with modified genetic traits.  This change is important because the APH yield underlies the insurance guarantees for both the yield protection and revenue protection crop insurance plants.  The TA option has been available to Pennsylvania farmers since 2013.

Your main choice when electing to take the TA option will be either to: 1) benefit from the protection afforded by a higher insurance yield or revenue guarantee or 2) move to a lover level of coverage and take advantage of higher premium subsidies.  A producer electing the TA option and keeping the same coverage level will likely pay a slightly higher premium because of the higher TA APH yield (because your premium cost is influenced by many factors, it is important to discuss all your options with your crop insurance agent).  A benefit for some farmers may be the opportunity to use a TA APH and opt for a lower level of coverage that provides a similar yield or revenue guarantee.  Although the overall level of protection would be similar, selecting a lower coverage level would be less expensive because of the way in which crop insurance premiums are subsidized by the Federal government.  For example, if you are currently insuring your corn or soybeans at 85% coverage level, you may be able to get a similar level of protection at lower cost by using the TA option and insuring at the 80% level.  The amount of subsidy varies greatly depending on the coverage level and insurance unit (ie. basic, enterprise, optional, or whole farm units) you select.

More information on trend adjusted yields can be found here; contact your crop insurance agent for a more detailed evaluation of your coverage options.

Supplemental Coverage Option.  The Supplemental Coverage Option (SCO) provides additional coverage for the deductible on your crop insurance policy based on purchase of additional county level coverage.  SCO is available for corn and soybean for both the yield and revenue protection policies.  Like your other crop insurance, SCO is heavily subsidized with the Federal government paying 65% of the premium cost for you.  Because higher levels of crop insurance are subsidized less than lower levels, SCO may be a more cost effective way to provide additional coverage for many farms.

SCO is purchased as an endorsement to your crop insurance coverage and must be purchased by the sales closing date.  The amount of SCO coverage depends on the liability, coverage level, and approved yield of your underlying policy.  If you elect to participate in the Farm Service Agency's Agricultural Risk Coverage program (ARC) you are not eligible to participate in the SCO.

The SCO works the same as your underlying crop insurance policy: it provides additional yield protection for yield yield protection policies and additional revenue protection for revenue protection policies.  The loss payment trigger for SCO is different because it is based on county yields or revenues rather than your farm's yields and revenues.

SCO is meant to help cover potential losses between the coverage level you select and 86% of the expected county yield or revenue.  For example, if you have a revenue protection policy at the 75% coverage level, you decided to accept the first 25% of any losses as a deductible (in exchange for lower crop insurance premiums) before the crop insurance policy kicks in.  In the case of a 75% coverage level, up to 11% (86% - 75%) of the expected county yield or revenue could be covered using SCO.  Lower levels of coverage would have higher levels of coverage under SCO.  If the underlying coverage is revenue and the harvest price is lower than the spring projected price, the loss trigger for SCO may increase proportionally.

An interesting feature of this coverage is that you will now have both individual and county loss triggers.  It is possible that you could: 1) have a loss payment based on losses calculated both at the county level and at the farm level, 2) have a loss payment based on losses at the county level, or 3) have a loss payment based on losses on your farm.  Because your crop insurance policy will now have both individual and county insurance triggers with SCO, it is very important to consider how your farm's risk compares to the risk at the county level and if SCO provides the protection you are expecting.

Whole-Farm Revenue Protection.  The WFRP insurance plan provides a way to cover all commodities sold by the farm under a single policy.  A farm can protect up to $8.5 million in revenue under this plan.  Any farm meeting eligibility requirements can purchase WFRP including those with specialty or organic commodities (both crops and livestock), or those marketing to local, regional, farm-identity preserved, specialty, or direct markets.  WFRP replaces the Adjusted Gross Revenue plans (AGR and AGR-Lite) that were available in previous years.

WFRP is available at the 50, 55, 60, 65, 70, 75, 80, and 85% coverage levels.  The 80% and 85% coverage levels are only available to farms producing at least three commodities that meet minimum revenue requirements.  The premium subsidy levels range from 55 to 80%.  You can buy WFRP alone or with other buy-up level (additional) Federal crop insurance policies.  If you buy WFRP with another policy, the WFRP premium is reduced due to the coverage provided by the other policy.  You must purchase your other crop insurance policies at buy-up levels of protection to participate in WFRP (catastrophic (CAT) levels of coverage do not qualify).

In order to be eligible for WFRP you must have five consecutive years of federal tax returns for your farm (ie. for eligibility in 2015 you must have 2009 - 2013 tax records), be able to meet the diversification requirements of the policy, and produce commodities on-farm that generate at least 50% of your farm's total revenue.

Other Crop Insurance Improvements.  There have been several other improvements to crop insurance that came out of the 2014 Farm Bill including:

1) Improved protection for organic and contracted crops

• Organic elections have been made available for more crops
• Organic price coverage has been extended to eight more crops (oats, peppermint, apricots, apples, blueberries, almonds, pears, and grapes for juice) for a total of sixteen (producer has the option of using organic or conventional prices).  Organic prices and additional crops will be available for 2016.
• The 5% premium surcharge for organic price options has been eliminated.
• For many crops, a contract price may be used if the crop is contracted by the acreage reporting deadline and the price is higher than the established price.

2) New options for low APH yields

• Farmers can choose to exclude disaster years from their production history if the county yield in that year was less than 50% of the county (or adjacent county's) 10-year average
• New and beginning farmers get a 80% yield plug for replacing low APH yields; the current 60% yield plug is retained for everyone else.

3) New benefits for being beginning farmers (available for the first five years of insurable crop interest)

• Beginning farmers are eligible for an additional 10% premium subsidy buy-up coverage
• They are exempted from paying the administrative fee for catastrophic (CAT) and buy-up policies
• They can use the production history of an existing farming operation, if they were previously involved in the decision making or physical activities of the farm
• An increase in the substituted yield for yield adjustment, which allows a replacement of a low yield due to an insured cause of loss, from 60 to 80 percent of the applicable transitional yield (T-yield) for the crop in the county.

Margin Protection Program for Dairy Producers (MPP-Dairy)

Under the 2014 Farm Bill dairy producers now have the opportunity to participate in the Margin Protection Program for Dairy Producers or MPP-Dairy.  According to the United States Department of Agriculture Farm Service Agency’s website, “the Dairy Margin Protection Program replaces MILC and will be effective not later than September 1, 2014, through December 31, 2018.” The margin protection program offers dairy producers: (1) catastrophic coverage, at no cost to the producer, other than an annual $100 administrative fee; and (2) various levels of buy-up coverage. Catastrophic coverage provides payments to participating producers when the national dairy production margin is less than $4.00 per hundredweight (cwt). The national dairy production margin is the difference between the all-milk price and average feed costs. Producers may purchase buy-up coverage that provides payments when margins are between $4.00 and $8.00 per cwt. To participate in buy-up coverage, a producer must pay a premium that varies with the level of protection the producer elects.  

In addition, the 2014 Act creates the Dairy Product Donation Program. This program is triggered in times of low operating margins for dairy producers, and requires USDA to purchase dairy products for donation to food banks and other feeding programs.

The Penn State Dairy Extension Team and the Center for Dairy Excellence are offering information sessions across the state to help producers to answer questions on the program and walk through farm examples and the online decision tools developed by Dairy Markets and Policy members. Producers are encouraged to bring their production histories from their co-op from the years 2011, 2012 and 2013 to help determine MPP-Dairy coverage levels.

For program years 2014 and 2015, individuals must sign up between September 2 and November 28, 2014.  Now is a great opportunity to learn more about this new program before the deadline approaches.

For more information about these Farm Bill Margin Protection Program-Dairy Information Sessions and a location near you contact your local Penn State Extension Office or visit the Dairy Team’s website.