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Extension’s Experiences with

USDA Risk Management Agency

Leslie N. SturmerLeslie N. SturmerUniversity of FloridaUniversity of Florida

Shellfish Aquaculture Extension ProgramShellfish Aquaculture Extension ProgramCedar Key, Florida USACedar Key, Florida USA

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OVERVIEW

History of Crop Insurance and RMA Extension Experiences in an Aquaculture

Crop Insurance Program– Development– Implementation

Pilot Cultivated Clam Insurance Program Other Partnership Opportunities

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CROP INSURANCEBackground

1930s– Authorized by Congress to help agriculture recover from Great Depression and Dust Bowl

1938– Federal Crop Insurance Corp (FCIC) created

to carry out program

Activities limited to major crops in main producing areas

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CROP INSURANCEBackground

1980 – Federal Crop Insurance Act – Expanded to all states and primary field crops– Authorized a subsidy of premium– Dual delivery sales

FCIC contract agentsPrivate insurance

companies/agents

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RISK MANAGEMENT AGENCYBackground

1996 – Federal Ag Improvement Reform Act (FAIR)– Risk Management Agency (RMA) created in USDA

to administer FCIC programs– Regional Services Offices (RSOs) directed to work

with producers, groups, universities

All sales & loss adjustment– Private companies/agents

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RISK MANAGEMENT AGENCYBackground

1996 – Federal Ag Improvement Reform (continued)– Emphasis on Risk Management and Education

(RME)– New program development– Crop expansion

Authorized to investigate aquaculture insurance

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RISK MANAGEMENT AGENCYBackground

2000 - Agriculture Reform Protection Act (ARPA)– Increased premium subsidies– New crop expansion– Further emphasis on Risk Management Education

Under-served StatesSpecialty Crop States (Under-served commodities)

– Expanded role of private sector in conducting R&DContracting and Partnership Agreements

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AQUACULTURE INSURANCEBackground

1996 – RMA begins investigating aquaculture insurance programs– Listening sessions throughout U.S.– Fact finding tours conducted regionally– Participation in industry meetings

1997 – RSOs identifies areas and species – Additional data gathered– Time lines determined

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AQUACULTURE INSURANCEBackground

1998 – RMA selects hard clams (quahogs) as first candidate for crop insurance– Crop’s resistance to diseases and other perils– Clams grown within a defined area– Strong interest shown by growers– Availability of producer records– Strong congressional support– Need for regional experts willing to work with RMA

provided through extension

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• Development • Implementation

EXTENSION’S INVOLVEMENT IN PILOT INSURANCE PROGRAM

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EXTENSION INVOLVEMENTProgram Development

Network created in participating states Electronic mail group established

– Hosted by USDA Cooperative State Research, Education, and Extension Services (CSREES)

– Facilitated exchange of information and ideas among agents and RMA

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EXTENSION INVOLVEMENT Program Development

Focus workshops organized, 1998-99– Clam growers interacted with Valdosta RSO– Information shared during meetings

Understanding of crop insuranceDetermining risks involved with clam productionObtaining data on crop value and production techniquesDetermining what type of insurance growers want

Follow-up workshops conducted– RMA staff reviewed crop provisions of draft insurance

policy with growers

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EXTENSION INVOLVEMENT Program Development

Growers’ production records obtained– Actuarial documents were based– Premium schedule determined

Appraisal methods for assessing crop losses established– Incorporated in loss adjustment manual

Tours for RMA staff and insurance providers conducted

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EXTENSION INVOLVEMENT Program Development

Pilot program policy approved by FCIC, 1999 Workshops held for RMA to introduce eligible clam

growers to program Policy provisions Reporting requirements Types of coverage Examples of premium costs, indemnity payments Insurable causes of crop loss

Program announcement in newsletters and extension publications

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EXTENSION INVOLVEMENT Program Implementation

Emphases shifted from educating RMA and growers to insurance providers, 2000-02 – Private insurance agents, loss adjustors,

compliance officers Hosted Clam Crop Insurance School with

National Crop Insurance Association– Representatives from reinsured companies

introduced to clam aquaculture and biology– Shellfish experts provided info on clam tolerances

and susceptibility to losses covered in policy

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EXTENSION INVOLVEMENTProgram Implementation

Other activities included – Maintaining list of insurance agents– Keeping growers informed of important dates

Purchase policy, File inventory report

– Instructing new growers in eligible counties on provisions and benefits of program

– Consulting with growers and loss adjustors on crop losses

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EXTENSION INVOLVEMENTProgram Implementation

Formed regional team with risk management and extension faculty at UF and Clemson University– Requested by RMA due to initial interpretation of

ARPA, 2001– Submitted proposal to make recommendations,

develop course of action, and conduct subsequent tasks to pilot clam program

– Funding for partnership not approved– New guidelines released by FCIC allows RMA to

begin implementing revisions to clam policy, 2002

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• States include• Massachusetts• Virginia• South Carolina• Florida

PILOT CULTURED CLAM INSURANCE PROGRAM

• Initiated in 2000

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PILOT CLAM INSURANCE PROGRAMBackground

Insurance guarantee based on dollar amount Crop Value Before Loss

– Value of undamaged insurable clams prior to occurrence – At start of crop year of policy, it’s the same as the grower’s

clam inventory report– Determined value includes

Number and ages of clams on inventory value reportAdjustment for changesPrices in actuarialsApplicable survival factors

Crop Value Insurance, or Dollar, Plan

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PILOT CLAM INSURANCE PROGRAMBackground

Crop Value After Loss– Value of insurable clams based on prices contained

in actuarials, following occurrence of a loss as determined by appraisal

– Plus any reduction in value due to insured causes Loss, and resulting indemnity, occurs if inventory

value of crop is less than amount of insurance based on the coverage level

Dollar Plan (continued)

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PILOT CLAM INSURANCE PROGRAM Coverage Levels

Level (%) Price (%)CAT 50 55

Limited 50 100

55 100

60 100

Additional 65 100

70 100

75 100

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PILOT CLAM INSURANCE PROGRAM Insurable Causes of Losses

Oxygen depletion– Vegetation, microbial activity, harmful algal

blooms, high water temperatures Salinity increase/decrease Freeze Disease Hurricane Tidal or storm surge Windstorm

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PILOT CLAM INSURANCE PROGRAM Causes of Loss Not Covered

Any cause that occurred prior to or after the insurance period

Inability to market clams Loss of market value Vandalism Theft Pollution Predation Dredging

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PILOT CLAM INSURANCE PROGRAM Practices

Age 1 – Nursery Bag– Clams a minimum of 5 mm shell length– Florida only

Age 2 – Growout Bag Age 2 – Round Pen Age 2 – Bottom Culture

– Clams a minimum of 10 mm shell length

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PILOT CLAM INSURANCE PROGRAM Example of Loss Payment

Coverage Level

Inventory Value Premium

Loss Payment

CAT $27,431 0 $13,715

50/100 $49,875 $585 $24,937

65/100 $64,837 $1,826 $39,900

Note: Example based on 2000 crop year premium prior to approved subsidy rate

Grower has 1 million growout clams (Age 2) and 0.25 million nursery seed (Age 2) planted in bags on a lease in Levy County.

Grower experiences a 75% crop loss due to hurricane.

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PILOT CLAM INSURANCE PROGRAM Participation

Crop Year

Policies Sold

Liabilities

$

2000 347 36M

2001 429 41M

2002 553 59M

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PILOT CLAM INSURANCE PROGRAM Participation

Crop Year

Total Premiums

($)

Indemnity Payments

($)

Loss Ratio*

2000 1,126,780 2,045,903 1.82

2001 1,401,005 2,218,156 1.58

2002 2,158,051 3,133,982 1.45

* Ratio of indemnity (loss) payments to premium costs

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• Education• Research

FUNDING AND PARTNERSHIP AGREEMENTS

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EDUCATIONAL SEMINARS

Series targeting management of risks by Florida clam producers, 2000-01

Financial support from Valdosta RSO Specialists invited to address topics

– Genetics in seed production– New marine mollusks for aquaculture– Marketing– Product quality

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SOFTWARE PROGRAM

Development of simplified computerized spreadsheets, 2000-01

Funded by RMA through CSREES C.L.A.M., Computer Logbook

And Management Specific to practices of

Florida clam culture industry

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SOFTWARE PROGRAM

Companion User’s Guide– Easy-to-follow explanation

Business tool to enhance record keeping and inventory management

Documentation for crop assistance programs

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CLAMMRS PROJECTClam Lease Assessment, Management, and

Modeling using Remote Sensing

Funded by USDA, 2001-2004 Endorsed by RMA Create database to be used by

insurance program to document events associated with crop loss

Installation and operation of water quality and weather equipment at lease areas

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CLAMMRS PROJECTClam Lease Assessment, Management, and

Modeling using Remote Sensing

“Real time” data posted to web site

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CLAMMRS PROJECTClam Lease Assessment, Management, and

Modeling using Remote Sensing

Continuous data base– Details of temporal variability– Trends in environmental

conditions in relation to clam health emerging

– Allows growers to make informed decisions

– Refine production management practices

Water Temperature

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65

70

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ture

(F)

Salinity

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pt)

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OTHER PARTNERSHIP AGREEMENTS

Targeted Commodity Partnerships for Risk Management Education– FCIC, 2002

Research Partnerships for Risk Management Development and Implementation– FCIC, 2002

Partnerships for Risk Management Education Grants Program – USDA CSREES, 2002-03– Southern Regional Center (Texas Cooperative Extension)

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ORGANIZATIONAL STUCTURES AND STRATEGIES

Funded FCIC, 2002-03 Provide workshops to introduce clam growers to

agriculture and aquaculture industry organizations Conduct assessment of

successful associations Develop informational flyer

that discusses need for organizational structure

Develop strategies for Florida clam culture industry

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MARKETING EDUCATION FOR FLORIDA CLAM FARMERS

Funded FCIC, 2002-03 Florida Department of Agriculture and

Consumer Services Identify preferences of buyers

for Florida clams Identify approach to reach

potential buyers Develop training and materials

for growers to use in market expansion

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SUMMARY

Extension played integral role in development and implementation of pilot crop insurance program

Insurance minimizes environmental and catastrophic risks beyond control of clam grower

Insurance provides important financial protection to clam aquaculture industry

Pilot program legitimizes aquaculture in “eyes” of federal government

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SUMMARY

Evaluation of clam culture insurance program thwarted by APRA in 2000

No changes incorporated in policy or loss adjustment procedures during 3-year pilot program

Aquatic crops present unique risk and underwriting challenges

Turn over of reinsured company representatives who service policy high

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SUMMARY

Crop insurance programs can cause “moral hazard”

Fraud, waste, and abuse can cause detriments to industry– Change culture practices– Change market price structure

Other complaints – Encourages investment growers– Keeps marginal growers subsidized