A REVENUE BASED STRATEGYFOR MARYLAND FARMS

Mark PowellMarketing, Maryland Department of Agriculture

Farmers Market ConferenceBowie, Feb. 29, 2012

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In 2011, there were 2 AGR-Lite policies in Md. covering $283,644 in farm revenue

Largest use of the product is in Washington State, where 261 policies are in place, covering $63 million in farm revenue

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* 5 year avg. Adj. revenue = $100,000

* 75% coverage level = $75,000 loss trigger

* Revenue produced = $30,000* Revenue ins. loss = $45,000* 90% payment = $40,500 loss payment

* Income With Ins. = $70,500 * Income Without Ins. = $30,000

Revenue for guarantee may include intended commodities to be purchased for resale, after basis adjustment

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Include intended purchases for resale but adjust your price to reflect subtracting your basis cost. This form replaces traditional acreage report.

Insurable Causes of Loss: Insurance is provided against loss of revenue due to any unavoidable natural disasters, including but not limited to, adverse weather, fire, insects, disease, wildlife, earthquakes, volcanic eruption, or failure of irrigation water supply, that occurs during the current insurance year (including disasters that may have started the previous year if policy was already in place) and/or market fluctuations that cause a loss in revenue during the current insurance year, …

Eligible Commodities Include:▪ Most Crops▪ Animal Production (land walkers to aquiculture)▪ Animal Products (milk, honey, wool, etc.)▪ Greenhouse Production▪ Organic Production (without additional premium charge)

It’s individualized, low cost protection based on your gross revenue history, not to exceed the revenue projections of your farm plan for the current year (crop, quantity and projected prices).

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Some exclusions (but not limited to):

Negligence, mismanagement, abandonment Failure to follow recognized farming

practices Theft, vandalism, mysterious disappearance Lack of labor Inability to market commodities because of

quarantines, boycotts, etc. Failure of buyer to pay for commodities

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1. Federal Income Tax Records Usually Schedule F Form 1040 and2. Current Year’s Farm Report

(commodity, acres and expected income) * Revenue guarantee is based on the lesser of the two.

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1. Federal Income Tax Records reflect sales

2. Beginning and End of year inventories are used to determine change in value allocated to current year

3. Coverage may be adjusted if current year expenses are less then 70% of trend adjusted historical expenses

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Value added activities including the cost and value of post production operations (sorting, packaging, (deduct packaging and labor costs) controlled storage, processed products, etc.) We insure on a “field run basis before post production operations occur.”

Cooperative dividends not directly related to commodity production

Income from custom hire machine work Income from timber, forest products, animals

for sport, pets, or show Disaster payments and most other USDA

payments Note: Must have records to reflecting above

items.

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Local market value - average price offered by buyers of the agricultural commodity being valued in the area where you normally sell that commodity; as reported by the Agricultural Market News Service/USDA (the most recent publication prior to the date of valuation will be used).

If such a price is not available, the average price offered by at least two commercial buyers, one nominated by you and one nominated by us. The value of any animal will not exceed the local market value of the same breed and type being valued.

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Adjustment to reflect: Local Prices of commodities before post

production added value activities occurs Historical and current year prices – both

adjusted Revenue and Expenses are adjusted

(expenses used to determine the year to year comparison of farming operation)

Revenue and expenses eligible for trend adjustments

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Price Adjustments – Un-insured Post Production Operations

(handbook, page 12)

Operations performed after producing an insured commodity to prepare it for sale to a wholesale buyer (first line buyer), or directly to consumers (e.g., sorting, grading, washing, waxing, and packing of commodities after harvest, including in-field operations and cold and controlled atmosphere storage), or activities such as processing or altering the physical nature of insurable commodities (making insurable commodities into products).

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For example, canned or frozen vegetables, flour, baby food, wine, and dried fruit, made from insurable commodities are products. Delivery to local markets, and warehousing of commodities other than those requiring cold or controlled atmosphere storage to preserve marketability are not considered post-production operations. [See hndbk. Par. 8B(1) and (2) for additional information.]

Sorting, grading, washing, waxing, and packing of commodities after harvest, including in-field operations, are considered post-production operations.

For some growers, postproduction in-field operations, are considered post-production operations.Some operations will include adding value by freezing the commodity or altering its physical nature (e.g., milling grain into flour, processing apples into baby food or cider, making grapes into wine, putting fruit into gift baskets, etc.). Cold and controlledatmosphere storage are considered post-production added value.

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If the price received for sold commodities, the value of accounts receivable, or the local market value includes the cost of post-production operations (including the cost of packaging materials, labor etc.), such cost(s) must be removed.

The cost of post-production operations are not allowable expenses.

The same adjustments are made to determine the allowable income for revenue history and claims purposes when post-production costs are included in the income.

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Maximum policy size: $1 Mil. (similar AGR up to $6.5 mil ) of Liability/Protection in Force) by coverage option

Cov. Level Max. Annual& Pmt. Rate Income

65/75 $2,051,28265/90 $1,709,40175/75 $1,777,77775/90 $1,481,48180/75 $1,666,66680/90 $1,388,888

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STAND-ALONE POLICY: covering the whole farming operation or

UMBRELLA TYPE POLICY: selected crops may also be protected by Multiple Peril crop policies (except AGR or Group Risk policies). Premium decreases if MPCI crops are also insured in addition to AGR-L policy (MPCI becomes primary coverage).

Note: Loss payments from other insurance count towards AGR-Lite revenue guarantee.

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* 5 year avg. Adj. revenue = $100,000

* 75% coverage level = $75,000 loss trigger

* Revenue produced = $30,000* Revenue ins. loss = $45,000* 90% payment = $40,500 loss payment

* Income With Ins. = $70,500 * Income Without Ins. = $30,000

Revenue for guarantee may include intended commodities to be purchased for resale, after basis adjustment

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Baltimore Co. MD Illustration for Educational Purposes Only Basic Unit Cost per Acre

Coverage Levels: CAT 50% 55% 60% 65% 70% 75%Protection: $423 $760 $844 $921 $998 $1,075 $1,151

Net Premium/Acre: $300 Total $34.10 $44.90 $54.40 $75.50 $93.50 $127.10

MPCI vs. AGR-Lite on Single Commodity Fresh Market Sweet Corn Farm

2011 Fresh Market Sweet Corn Crop Insurance Coverage - MPCI

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Baltimore Co. MD Illustration for Educational Purposes Only Approved AGR: 1,000 Doz./A. X $4.80 = $4,800Coverages: 65/75 65/90 75/75 75/90 80/75 80/90

Gross Income: $4,800 $4,800 $4,800 $4,800 $4,800 $4,800

Level of Coverage: 65% 65% 75% 75% 80% 80%Loss Trigger Point: $3,120 $3,120 $3,600 $3,600 $3,840 $3,840

Payment Rate: 75% 90% 75% 90% 75% 90%Amt. of Protection: $2,340 $2,808 $2,700 $3,240 $2,880 $3,456

$53 $63 $103 $124 N/A N/A

36+34=$70 46+34=$80 74+34=$108 95+34=$129 N/A N/A

MPCI Only Coverages: CAT 50% 55% 60% 65% 70% 75%Protection: $423 $760 $844 $921 $998 $1,075 $1,151

MPCI Only - Net Prem Fr Mkt Sw Corn/A. $300 Total $34.10 $44.90 $54.40 $75.50 $93.50 $127.10

2011 Fresh Market Sweet Corn Crop Insurance Coverage - AGR-Lite VS. & MPCI

----------------------------------------------------------------------- Estimated Net Premium Cost per Acre-------------------------------------------------------

AGR-L Only (FMSC only crop):

AGR_L as Umbrella to MPCI, Total Net Prem forAGR-L Fr Mkt Sw Cn and MP

50% Lvl:

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Total farm illustration (Assumes Annual Farm Report is less than 5 yr. histoty of 1040 F. ) assumes :

Crop Acres ProductionProjected Price*AGR Value

Frsh Mkt Swt Corn/dzn 9.9 9,900 $4.80 $47,520 * AMS/USDA Prices

Frsh Mkt Swt Corn/dzn Buy for Resale 500 $0.96 $480Value after basis Adjustment

Bell Peppers/Lbs 0.5 10,000 $1.25 $12,500Summer Squash/Lbs 0.5 15,000 $1.45 $21,750Potatoes/Lbs 3.0 75,000 $1.25 $93,750

Total $176,000

Baltimore Co. MD Illustration for Educational Purposes Only Approved Adjusted Gross Revenue: $93,750Coverages: 65/75 65/90 75/75 75/90 80/75 80/90

Gross Income: $93,750 $93,750 $93,750 $93,750 $93,750 $93,750

Level of Coverage: 65% 65% 75% 75% 80% 80%Loss Trigger Point: $60,938 $60,938 $70,313 $70,313 $75,000 $75,000

Payment Rate: 75% 90% 75% 90% 75% 90%Amt. of Protection: $45,703 $54,844 $52,734 $63,281 $56,250 $67,500

$592 $710 $1,145 $1,374 $1,797 $2,155

Est. Premium Cost per $100 of Protection: $1.30 $1.29 $2.17 $2.17 $3.19 $3.19

----------------------------------------------------------------------- Estimated Net Premium Cost -----------------------------------------------------------AGR-L Only - Net Prem Fr Mkt Sw Corn, Bell Peppers and Summer Squash,

2011 Fresh Market Sweet Corn & Other Crop Insurance Coverage - AGR-Lite

Improves credit worthiness at the bank

Cash value on growing crops = Coverage

Provides liquid collateral

Helps assure timely loan repayment

Loss Proceeds are assignable to creditors

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3/15 Enrollment deadline – most spring crops Meets eligibility requirements for SURE crop

disaster payment program (if funded for 2012) that requires that all crops be enrolled in crop insurance or NAP

Maryland producers have received $398 mil. of protection and $26 Mil. of loss payments for premium cost of $ 17 mil.; $1.57 for each dollar of premium cost in 2011

Additional Info: contact a crop insurance agent or Steve Connelly at (410) 841-5770

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* 5 year avg. Adj. revenue = $100,000

* 75% coverage level = $75,000 loss trigger

* Revenue produced = $30,000* Revenue ins. loss = $45,000* 90% payment = $40,500 loss payment

* Income With Ins. = $70,500 * Income Without Ins. = $30,000

Revenue for guarantee may include intended commodities to be purchased for resale, after basis adjustment

Work with your agent to underwrite the policy at time of application .

Use your accounting records to help agent adjust income and expense records for prior and current years to reflect the “Before added Value amounts for all commodities. AGR-L does not provide protection for added value activities.

Be certain to include commodities purchased or to be purchased for resale (value after adjusted for basis ) as income in historical records and for the current year on the Farm Commodity Report.

Report damage to agent immediately and do not destroy evidence of such damage until authorized to do so before a loss adjuster evaluates such damage.

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“It’s a program that can help a producer survive a disaster and return to profitability!”