Title: Adjusted Gross Revenue Insurance (AGR) - A Risk Management Alternative
1Adjusted Gross Revenue Insurance (AGR) - A
Risk Management Alternative
- Wen-fei Uva, Ph.D.
- Department of Applied Economics and Management
- Cornell University
2Background for AGR Insurance
3OBJECTIVE
Provide an insurance alternative for producers of
agricultural commodities without individual
insurance programs.
4Snapshot of AGR
- Provides a safety net for revenue
- Provides insurance coverage for multiple
commodities under one insurance product - Cash is a common measurement
- Uses a producers historic Schedule F tax forms
to provide a level of guaranteed revenue for the
insurance period - Uses the AGR farm report to determine coverage
5UNDERWRITING
- Application
- Five Years Schedule F Forms
- Annual Farm Report
- Historic yearly enterprise revenue (5 years)
- Estimated enterprise revenue (insurance year)
- Beginning Inventory
6Application - Form FCIC 18050
75 continuous years of Schedule 1040 F
8Annual Farm Report - AGR Form 821
9Crop livestock history for operation - AGR
Form 823
10In 2001 2002, subsidy and cost-share were
available for Underserved Northeast Producers in
the pilot areas.
Signup deadline was January 31 in 2001 and 2002.
112001/2002 PILOT AREAS
New England States (All Counties) New York (16
Counties) New Jersey (All Counties) Pennsylvania
(6 Counties) Maryland (21 Counties) Delaware (All
Counties) Virginia (26 Counties, 14 Cities)
122001 AGR Cost-Share Program Preliminary Sales
Information (As of May 7, 2001)
2001 Policies CONNECTICUT 22 DELAWARE 0
MAINE 4 MARYLAND 8 MASSACHUSETTS 33 NEW
HAMPSHIRE 4 NEW JERSEY 32 NEW
YORK 68 PENNSYLVANIA 2 RHODE
ISLAND 1 VERMONT 7 Total Northeast 181
132001 AGR Cost-Share Program Preliminary Sales
Information (As of May 7, 2001)
2001 Policies CAYUGA 0 CHAUTAUQUA 2 ERIE
0 GENESEE 0 MONROE 0 NIAGARA 4 ONONDA
GA 2 ONTARIO 2 ORANGE 2 ORLEANS 9 OSWE
GO 2 SENECA 3 SUFFOLK 2 ULSTER 4 WAYNE 34
YATES 2 Total NYs Pilot Counties 68
14Who Is Eligible?
- Producing agriculture commodities in a pilot
county (may include income from contiguous
non-pilot counties). - Have filed Schedule F (or equivalent) tax forms
under the same entity for the past 5 years. - If more than 50 of expected income is from
insurable crops, MPCI must be obtained (if
available.) Note protection, benefits, and
premiums are coordinated.
15- No more than 50 of allowable income may come
from products purchased for resale. - No more than 35 of expected allowable income can
be from animals and animal products.
It does make an insurance product available for
diversified producers of horticultural
commodities, including direct marketers.
16Allowable Income Adjustments
Exclude income from post-production value added
operations such as processing, packing,
packaging, etc.
17Coverage Election
18Diversification Formula
(1/Number Of Crops 0.333) (Total Expected
Income) 1/19 0.33 1,449,670 25,178
19Indexed Allowable Income
Question For a growing operation, will you be
able to insure at a high enough level? Answer
YES! You are permitted to index your coverage
upward by a maximum of 20 a year based on the
five-year history of schedule F revenue. Maximum
adjustment (1.20)4 2.07 x 5-year Average
Allowable Income
20Calculating Indexed Allowable Income
21- Although the maximum adjustment is 2.07 times of
the 5-year Average Allowable Income - You can only insure the lesser of
- the indexed allowable income, or
- the expected revenue from the intended commodity
report
22The Event of Damage or Loss
- Coverage
- Loss of revenue by unavoidable cause occurring
during the insurance period. - Abandonment is not permitted.
- Your decision not to harvest due to low market
prices will not be considered abandonment.
23The Event of Damage or Loss
- Notice of damage or loss
- Cause of loss
- Insured year farm tax form
- Inventory changes (beginning and ending)
- Accounts receivable changes
- In case expenses fall below 70 of approved
expenses, allowable income needs to be adjusted
accordingly, one may need to provide accounts
payable.
24Impact of AGR Insurance on Revenue
Approved AGR 720,636
25PRODUCER PREMIUM ELEMENTS
- Number of crops
- Type and proportion of crops
- MPCI coordination
- Producer subsidy
- 65 Coverage Level - 59
- 75 Coverage Level - 55
- 80 Coverage Level - 48
- Additional 50 cost share for Underserved Areas
(inc. NY pilot ctys)
26Premium Calculation Example
A diversified vegetable farm in a NY pilot
county Approved AGR 720,636
Less than 1 of Gross Sales
27Any Concern About Using Schedule F?
Suppose you have been using creative tax
management strategies! -- We assume that anyone
who cheats on his income taxes will do it
consistently!
Why not wait for disaster payments?
- Your risk management strategy is not under your
control. - With AGR (or other crop insurance) your
strategy is under your control.
28Development of the new farm bill this year or
next year
- A likely major role for the Risk Management
Agency (RMA) as Congress attempts to get farmers
to manage their own risks. - Continue to develop a range of risk management
alternatives (some new, some existing) for
producers. - Cost share continued for AGR (so that producers
pay only about 25 of actuarial costs of the
program)
29Additional Information
- Adjusted Gross Revenue Pilot Crop Insurance
Program for Specialty Crops at Michigan State
University - www.aec.msu.edu/agecon/blackj/agr.htm
- Risk Management Agency
- www.rma.usda.gov
- Cornell Risk Management Web-site for Specialty
Crops - http//aem.cornell.edu/special_programs/hortmgt/ri
sk/index.htm