THE "CROP INSURANCE REFORM ACT OF 1994"
FOR ALABAMA FARMERS
The "Crop Insurance Reform Act of 1994" was signed into law on October 13,
1994. By this law, crop insurance was expanded and ad-hoc agricultural
disaster assistance was eliminated. Future disaster protection will only be
available through the crop insurance program. Producers who want to
receive farm program benefits are now required to take at least
"catastrophic" crop insurance coverage.
* Three Levels of Risk Protection Are Now Available
The Reform Act has been expanded to include 3 basic alternatives for
farming risk management. These include:
1. "Catastrophic Crop Insurance" protection (CAT);
2. "Additional insurance" through Multiple Peril Crop
Insurance policies; and
3. The "Non-Insured Assistance Program" (NAP).
by: James Novak, Extension Economist & Assoc. Professor, Dept. of Agricultural
Economics, Auburn University 36849. Phone: 205-844-3512. Date: 1/18/95
* Insurable Causes of Loss Remain The Same As Under MPCI.
Insurable causes of loss are basically those about which nothing can be
done. Included are drought, excess moisture, flood, hail, wind, fire, insects,
and disease. Good management practices must be followed throughout the
cropping season. Failure to follow good management practices can
invalidate the insurance contract.
* Losses Are Paid Based On Individual Farm Yields.
Insured yield losses are based upon individual farm losses, not an area of
county-wide disaster yield loss. Farm Actual Production History (APH) for
a crop must be established prior to the final sign-up date for the insurance.
Producers must provide 4 years of production records to establish an
individual APH yield for a crop. If a producer has less than 4 years of
records, yields will be established by the FCIC based on a percentage of the
average crop yield (T or D) for an area. These are generally less favorable
than those received when actual production records are provided.
* Yield Guarantees For APH Depend On A Farmers Records
If a farmer has 4 years of production records, the average of his 4 years of
production can be insured. If a farmer does not have 4 years of production
records insurable yields falls back on county T-Yields.
The following insurable yields are based on the years of records a farmer
Records of Yield Insurable Yield
None 65% of T.
1 1 Yr Record + 80% of T for 3 Years.
2 2 Yrs Records + 90% of T For 2 Years.
3 3 Yrs Records + 100% of T For 1 Year.
4 or More Simple Average.
* No More "Ad-Hoc" Disaster Assistance.
Combining the insurance and disaster aid into a single federal "on-budget"
program sets up legal barriers to "ad-hoc" agricultural disaster programs.
This does not mean we can't have disaster programs in the future, only that
some other program will have to be cut in order to provide funding in the
federal budget for disaster assistance.
* Linkages to Farm Program Benefits
Linkages have been made between Farm Program benefits and the crop
insurance program. In order for a producer to remain eligible for any price
support or production adjustment program, the Conservation Reserve
Program, or Farmer's Home Administration farm ownership, operating, or
emergency loans, they must take at least a catastrophic (CAT) level of crop
insurance coverage on crops of "economic significance." Crops of economic
significance are those which contribute at least 10% of the value of all crops
grown by the producer.
* "CAT" Coverage
Risk protection provided under CAT is based upon 50% of a producers
historic yield and 60% of the market price established by the Federal Crop
* Cotton Loss Example Provided By Wayne Davis, CEA-Coordinator
The following example was provided by Wayne Davis, County Agent
Coordinator in Elmore County and relates to cotton production in his area.
A cotton producer has an APH yield of 600 pounds of lint per acre.
In 1995 he harvested 200 pounds due to drought. Since he had a 50%
yield guarantee under CAT, he would receive payment on 100 pounds.
600 lbs. x 50% = 300 lbs guaranteed
300 lbs. - 200 lbs harvested = 100 lb loss.
If the expected market price was 60 cents/lb. he would get paid 36
cents per pound or $ 36.00 per acre.
$ .60/lb. x 60% = $ .36
$ .36/lb. x 100 lbs./acre = $36.00/acre payment.
Had there been a flood and the grower lost the entire crop he would
receive $ 116.80 per acre.
$ .36 x 300 lbs. = $ 116.80/acre payment.
* Cost of CAT Coverage
There is no premium charged for CAT coverage. However, there is an
"Administrative Fee" of $50 per crop, per county. This fee will not exceed
$200 per producer per county. If a producer farms in more than one
county, the maximum fee they will have to pay for CAT coverage is $600.
A difference in the old MPCI and CAT coverage is that the Administrative
Fees will have to be paid up front. When a producer signs up for the
insurance they will have to pay the Fee.
* CAT Coverage Is Available From The Local FSA or Private Insurance
CAT insurance coverage may be obtained from the local Consolidated Farm
Service Agency (formerly ASCS and Farmers Home) office or from private
crop insurance sellers.
* Deadline For Insurance Sign-Up Has Been Moved Up By 30 Days.
By the new legislation the final sign-up date for all insurance coverage will
be 30 days earlier than it has been. This means that spring planted crop
sign up will be February 28 instead of March 31. For fall planted crops
we're looking at November 30. Producers should check with the local FSA
office for the final sales date on the crops they want to insure.
* MPCI Coverage Levels of 65% and 75% Are Still Available.
MPCI coverage levels of 65% and 75% of APH yield are still available from
private crop insurance agents. These coverage levels are now called
* Additional Price Coverage Is Also Available.
Additional coverage is also available on from 60% to 100% (in 5%
increments 60%, 65%, 70%, etc.) of the FCIC established market price.
Remember, these prices are set by the FCIC and do not necessarily
represent harvest market price.
* Example of Additional Coverage
Example of 75% yield coverage & 100% price coverage on 600 lb.
600 x 75% = 450 yield guarantee.
Any harvested or appraised yield below 450 would result in an
insurance payment. A total wipe-out would result in a check for 450
lbs. times the guaranteed price.
$ .60 x 450 = $270 per acre.
Additional insurance results in a higher dollar coverage than the CAT
coverage. However additional insurance also costs more than CAT
* What Does Additional Coverage Cost?
An "administrative fee" of $10 is charged for 65% or 75% additional
coverage levels. The $50 administrative fee will be charged on all 50% yield
coverage policies, even if additional price protection is purchased.
Premiums are charged for additional levels of coverage beyond CAT
coverage. The premium rate depends on the level of price and yield
coverage purchased, the crop, and performance history. The local insurance
agent can give a producer the premium rate for the county, crop, and level
of coverage desired.
While premium costs are not insignificant, under the new Act, these rates
are expected to be from 8 to 18% lower than in previous years.
* Landlords and Tenants
"The law requires each person or entity sharing interest in a crop to
purchase their insurance coverage independently in order to assure program
eligibility for their share." Landlord and tenant do not have to have the
same level of insurance coverage. However, if both get government
program payments, both will have to take at least CAT coverage. The rule
does not apply to cash rental agreements, but does apply to share rentals.
* The "Non-Insured Assistance Program" or "NAP."
The new law combines disaster assistance with the crop insurance program.
Because the intent of the law is to eliminate "off budget" disaster assistance
programs, a program for non-insured crops has been established. This
program is called "NAP" or the "Non-Insured Assistance Program."
* Losses Covered By NAP.
NAP coverage is the same as that provided under CAT. Coverage is a yield
loss greater than 50% of APH yield. Payment is made based on 60% of the
established market price for a crop. The difference between CAT and NAP
is, under NAP, the average yield for the area must also fall below 65% of
normal in order to trigger a payment.
* NAP Is Set Up For Crops With No Insurance Program.
Categories of crops covered under NAP are food, fiber, floriculture,
Christmas trees, aquaculture, industrial, and nursery crops. Crops
specifically mentioned in FCIC releases as being covered are:
Mushrooms, Celery, Asparagus, Carrots,
Lettuce, Pecans, Pistachios, Cantaloupes,
Sweet Potatoes, Broccoli, Nursery in-ground,
Sweet Cherry, Honeydews, Strawberries, Cauliflower,
Watermelons, Hops, Peppermint, Hay,
Spearmint, Lawn Seed, Pineapple, Millet.
* What Is The Cost For NAP?
There is no direct charge to producer for NAP coverage. However
producers must go into the local FSA office and sign up before the sign up
deadlines for spring and fall planted crops.
* NAP Is Not A Free Ride.
Producers will have to supply one years worth of yield records in order to
sign up for NAP, or according to our understanding, accept the yield
provided by the CFSA.
Not all crops will be covered. A producer should check with the local
CFSA office to determine if their non-insured crop can be covered by NAP.
Acreage and production reports are required. Producers have to sign up
and report required information to local FSA office, by the required sign-up
and reporting dates. If a farmer feels they are eligible for payment, they will
need to apply to the local FSA office to receive payment.
It is our understanding that cross-compliance of CAT with NAP will be
enforced. According to what we've been told, if you are eligible for CAT
coverage and choose not insure your eligible crops, you will not be eligible
for NAP payments.
* What Other factors Should A Producer Consider?
Payment rates for both NAP and insured crops will be prorated on a per
unit (bushels, pounds, etc.) basis depending on "costs incurred" and whether
crop has been:
(1) Not yet planted,
(2) Planted but not harvested, or
In other words, if the crop has not been planted and gets wiped out, the
FCIC is not going to pay the full indemnity payment because planting and
other costs have not been incurred.
The address and phone number of the FCIC office covering Alabama
M113 Federal Building
Valdosta, Georgia 31601
Their phone number is