December 15, 2014
On December 12, USDA’s Farm Service Agency (FSA) announced an interim final rule implementing the changes to the Noninsured Crop Disaster Assistance Program (NAP) made by the 2014 Farm bill. The release of the interim rule means the changes go into effect immediately, but public comments will be accepted on the rule through February 23, 2015. Those comments will be taken into consideration as the agency before they remove the interim status from the rule.
The 2014 Farm Bill makes several changes to NAP in order to make it more attractive risk management tool for farmers. NAP will now increase the coverage levels available to all farmers while also providing incentives to beginning, socially disadvantaged, and limited resource farmers to enroll and leveling the playing field for organic and direct market farmers.
If a farmer wants to take advantage of the changes made to NAP for the current 2015 crop insurance year and the closing date for their crop has already passed (mostly perennial crops), they need to contact their local FSA office by January 14, 2015. Farmers can retroactively sign up for NAP, but only until January 14, 2015. Everyone else has until their normal closing date to sign up.
What is NAP?
The NAP program provides an insurance option for farmers who grow crops that are not eligible for federal crop insurance in their area. The program is run by FSA, not, as with federal crop insurance, by the Risk Management Agency (RMA).
In the past farmers have often referred to NAP as the “not a penny” program because it hardly ever paid out. This was the result of the coverage level being low; you needed a 50 percent loss on which NAP would then only pay an indemnity of 55 percent of the crop’s value.
In other words NAP would only pay an indemnity of 27.5 percent of the value of a farmers total crop.
The trade-offs for the low coverage level have been that the program is available for many more crops than RMA has multi-peril crop insurance (MPCI) policies for, and that the only cost to the farmer is a service fee of $250 per crop insured, up to a maximum of $750 per farm.
The program has never been intended to replace RMA’s MPCI policies; in fact, a farmer cannot obtain NAP coverage for a crop with an MPCI policy. NAP is intended to help farmers with non-insurable crops, farm another year after they experience a catastrophic event.
NAP is also a mechanism by which RMA can obtain price information that could lead to a MPCI policy for a crop in the future.
Farm Bill Changes to NAP
The Interim rule implements several changes to NAP made by the 2014 Farm Bill.
NAP By-up Coverage Levels
The farm bill expands NAP to include buy-up coverage to cover up to 65 percent of production. It also expands the program to cover 100 percent of a crops value. These are significant improvements to NAP. Previously, NAP would only cover 50 percent of the crop and then only pay 55 percent of the crops value. NAP coverage will now also cover the organic, direct market, fresh, and processing crop values when adequate pricing data is available.
The basic 50 percent coverage will still only cost $250, but the farmer will have to pay an additional formula based premium in order to buy-up coverage to the 65 percent level (5.25 percent times the level of coverage). That premium will be capped at $6562.50, and it will apply towards an individual or entity’s $125,000 NAP payment limit. This payment limit is separate from the payment limit for other FSA programs like ARC.
Beginning, Socially Disadvantaged, and Limited Resource Farmers
For beginning farmers, farmers that have been farming for less than 10 years, and socially disadvantaged farmers, the $250 service fee is waived. Previously the waiver applied only to limited resource farmers. Beginning farmers that have already paid the service feed for the 2015 crop year, will receive a refund.
Additionally, as a result of the 2014 Farm Bill, all of these same farmers are also now eligible for a 50 percent premium reduction when they purchase NAP buy-up coverage.
Organic and Direct Market Prices
The interim rule also establishes a process by which the state FSA office can provide farmers with the option of insuring the crops at the organic market price rather than the conventional price, or at a direct-to-consumer price. Sufficient data must be available for FSA to establish those separate average market prices within a state for those alternative markets.
The interim rule makes many other changes to NAP that are needed to implement 2014 Farm Bill. These changes include additional definitions and changes to definitions, expansion of the number of covered crops, and rules for determining the prices for the crops covered by NAP.
The rule also implements the sodsaver provision of the new farm bill, requiring those seeking NAP coverage for newly broken out cropland to pay 200 percent of the normal premium, not to exceed the maximum premium cap of $6,562.50, as a means of discouraging the destruction of native grasslands in the northern Plains states.
NSAC will be reviewing the full rule in the coming weeks in order to provide the United States Department of Agriculture with detailed comments before the February 23 deadline for public comment.