Crop insurance protects farmers during bad growing seasons
Mary Lou Jay
Raising crops is a demanding and risky business. Mother Nature is an essential partner in the process, but she's also a fickle one: Freezing temperatures can ruin orange crops in Florida, wildfires can destroy avocado fields in California and droughts in the South and Midwest can dramatically reduce corn yields per acre.
That variability makes it difficult for farmers to budget for everything from living expenses to major equipment purchases. Fortunately, they can get insurance from the government and private companies alike to cover themselves against catastrophic losses. Crop insurance is one of several risk management tools that agricultural producers can use to smooth out those economic ups and downs.
There are two general types of crop insurance available in the United States. Private policies, which are sold directly to farmers by private insurance companies, usually offer financial protection against damage caused to crops by weather. WeatherBill, for example, provides a variety of weather insurance policies. Its drought protection policy allows farmers to pick a level of rainfall -- if the amount of rain during the coverage period fails to reach that level, the farmer gets a payout. The company also insures farmers against freezing, heat and heavy rain.
Multiple-peril crop insurance (MPCI), on the other hand, is available in conjunction with the federal crop insurance program. National Crop Insurance Services reports that in 2008, more than 272 million acres of U.S. crops were covered by the program, representing $90 billion in crop value.
MPCI policies cover damage to crops for everything from bad weather to insect infestation and disease. They are sold through several private companies, but the entire program is overseen by the U.S. Department of Agriculture's Risk Management Agency. Farmers have to purchase crop insurance early in the planting season.
There are several different types of MPCI. Some policies pay claims if farmers lose a certain percentage of their crops, while other insurance policies will cover farmers whose revenue falls below certain levels, according to the Department of Agriculture. Some policies cover all of the crops on a farm, others specific crops. Some policies will protect a farmer economically if the price of a crop drops dramatically between planting and harvesting.
When insurance isn't available for a crop in a certain region, the Noninsured Crop Disaster Assistance Program (NAP) provides some economic assistance if weather causes low crop yields or prevents planting, according to the Department of Agriculture.
