Don’t Sleep On Catastrophic Crop Insurance
The 2014 Farm Bill added crops that can be covered by the Noninsured Crop Disaster Assistance Program (NAP) that was originally offered in the 1996 Farm Bill. The 2014 Farm Bill also expanded its coverage by allowing producers to purchase additional coverage. NAP coverage is limited to crops commercially produced for food and fiber, and to other specific crops for which catastrophic coverage is not available.
NAP covers losses due to damaging weather (drought, freeze, excessive moisture, excessive wind or hurricanes), adverse natural occurrences such as earthquake or flood, and other adverse natural occurrences (e.g., excessive heat, plant disease, volcanic smog, or insect infestation). The natural disaster must occur during the coverage period, before or during harvest, and directly affect the crop.
Producers must apply for coverage at their county FSA office by the application closing date. Application closing dates vary by crop and area. To be eligible for NAP, producers must report crop type and variety, location of acres, producers and related shares of crop, growing practice, crop planting date, and the intended use of the covered commodity.
After planting or harvest, producers also must report acres planted, quantity harvested, and disposition of crop. Production is verified by the reporting producer but may be subject to audit by FSA. The application also must include a service fee — $250 per crop up to a maximum of $750 per producer per administrative county, with a maximum total payment of $1,875 for producers that operate in multiple counties. Premiums also are due if electing buy-up coverage. Beginning, limited resource, and traditional underserved farmers are eligible for a waiver of the service fee and a 50% premium reduction for any buy-up coverage they purchase.
Premiums And Payouts
Basic NAP includes Catastrophic Coverage (CAT) for production losses greater than 50%, valued at 55% of the commodity price. This means the most you can collect for a total loss is 27.5% of the total value of the crop. Additional coverage may be purchased for production losses ranging from 50% to 65% in 5% increments, valued at 100% of average market price.
Premiums for this additional coverage are 5.25% of the calculated covered crop value. Indemnity payments (claims) are limited to $125,000 for each individual or entity registered with FSA for the farm unit. You can register several crops and buy up coverage for each with a maximum premium of $6,562.50 (equal to the maximum payment indemnity of $125,000 with the premium rate of 5.25%).
When a loss occurs, average market values are used to calculate loss. At the state level, FSA may set separate market prices for a crop based on represented farming practices or sales to different markets within the state.
Covering Your Assets
Considering the risk associated with growing fruit and vegetable crops, it would seem prudent to purchase NAP coverage. If you plant more than one eligible crop, then you should determine the coverage you want prior to buying the policy with the first application closing date you face.
If you acquire buy-up coverage for one crop, you may bump up against the maximum payable indemnity to be covered with that crop. If so, that allows you to purchase buy-up coverage on all other crops at no additional cost. While payment will be limited to your first $125,000 claim, the multiple crops allow you more opportunities to collect if a natural disaster occurs.
And There’s More
Pay special attention to the application closing dates for crops in your area and consider all crops you may cover before visiting your county FSA office. Additional information on NAP can be found here.