Managing Yield Risk

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• Managing Yield Risk
• in Fruit Production with
• Crop Insurance

Jayson K. Harper Professor of agricultural
economics Department of Agricultural Economics
and Rural Sociology The Pennsylvania State
University Penn State is committed to
affirmative action, equal opportunity, and the
diversity of its workforce
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Types of Agricultural Risks

• Production
• Marketing
• Financial
• Legal
• Human resource
• Environmental

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Risk Management Strategies

• 1) Retain
• 2) Shift
• 3) Reduce
• 4) Self-insure
• 5) Avoid

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Yield Risk Sources and Solutions

• Sources
• Adverse weather
• Pest damage
• Solutions
• Pest management practices
• Site selection
• Variety/hybrid selection
• Rotation/diversification
• Irrigation
• Crop insurance

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Multi-Peril Crop Insurance (MPCI)

• drought
• excess rain
• excess wind
• fire
• freeze
• hail

Causes of losses covered

• tornado
• earthquake
• insects
• disease
• wildlife
• failure of irrigation supply

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Crops covered by MPCI in Pennsylvania

• apples
• barley
• processing beans
• cabbage
• corn (grain and silage)
• forage production
• forage seedling
• grain sorghum
• grapes
• green peas
• nursery

• oats
• peaches
• potatoes
• soybeans
• fresh-market sweet corn
• processing sweet corn
• tobacco
• fresh-market tomatoes
• processing tomatoes
• wheat
• winter squash

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Crop Insurance Program Basics

• 1) Determine actual production history (APH)
  yield
• minimum of 4 successive years of records
• maximum of 5 successive years of records (10
  years for other crops)
• lt4 years of records ? T-yields
• Transitional yields vary by county and production
  practices
• 0 years of records 65 of county T-yield
• 1 year of records 80 of county T-yield
• 2 years of records 90 of county T-yield
• 3 years of records 100 of county T-yield

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Figuring Your APH Yield (apple example)
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Crop Insurance Program Basics

• 2) Select desired coverage level
• 50, 55, 60, 65, 70, or 75 of APH yield
• 50 for catastrophic (CAT) coverage
• 3) Select desired price election
• Up to 100 of indemnity price
• 55 for catastrophic (CAT) coverage

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Crop insurance calculations

• Yield guarantee APH coverage level
• Premium/acre yield guarantee premium rate
  price election
• Note
• CAT program costs 100/crop/county for a 50
  yield guarantee and a 55 price election.
• MPCI has a 30/crop administrative fee.
• These fees are being paid by the Commonwealth of
  Pennsylvania since 2000.

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Crop insurance calculations

• If actual yield is less than the yield guarantee
• Indemnity payment (yield guarantee actual
  production) price election
• If actual yield is equal to or greater than the
  yield guarantee
• Indemnity payment 0

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Cost of Grower Yield Coverage (GYC) Insurance
Protection for Apples and Gross Returns under
Various Yields (500 bu. APH yield, 7.10
fresh-market price election, 8.00 market price)
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Apple Coverage Options

• Hail Quality Adjustment
• Option A hail damage adjustment for processing
  apples not grading U.S. 1 (processing)
• Option B hail damage adjustment for fresh fruit
  not grading U.S. Fancy

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Apple Coverage Options

• Varietal Groups (Option C)
• Varietal Group A Braeburn, Cameo, Crispin, Fuji,
  Gala, Honeycrisp, Jonagold, Macoun, Pink Lady,
  Royal Gala, Sommerfield
• Varietal Group B All other varieties

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2004 Price Elections for Apples
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Other types of policies

• Adjusted Gross Revenue (AGR)--insures the revenue
  of the entire farm rather than an individual crop
  by guaranteeing a percentage of average gross
  farm revenue, including up to 35 livestock
  revenue. Uses information from a producer's
  Schedule F tax forms to calculate the policy
  revenue guarantee. Maximum liability is 6.5
  million.

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Pennsylvania AGR Counties

• Authorized in 2000
• Berks Co.
• Carbon Co.
• Lackawanna Co.
• Lehigh Co.
• Monroe Co.
• Northampton Co.

• Added for 2003
• Crawford Co.
• Columbia Co.
• Erie Co.
• Fayette Co.
• Lancaster Co.
• Schuylkill Co.
• Westmoreland Co.
• York Co.

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Other types of policies

• AGR-Lite--insures the revenue of the entire farm
  rather than individual crops by guaranteeing a
  percentage of average gross farm revenue. All
  farm raised crops, animals, and animal products
  are eligible for coverage. Uses information from
  a producer's Schedule F tax forms to calculate
  the policy revenue guarantee. Limited to a
  maximum liability of 250,000 per farm.

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Should I buy crop insurance?

• Yield variability
• Cash flow requirements
• Self insurance
• CAT coverage
• Premium discounts for higher levels of coverage

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Sales closing dates

• JANUARY 31-- AGR insurance
• MARCH 15-- spring seeded crops
• MAY 31 nursery crops
• JULY 31-- forage seedings
• SEPTEMBER 30-- fall seeded crops
• NOVEMBER 20-- fruit crops
• NOVEMBER 30-- GRP insurance
• For more information, visit the
• Penn State Crop Insurance Education Web Site
• http//cropins.aers.psu.edu