June 16, 2015
Recently, the Risk Management Agency (RMA) posted a new report on its website outlining progress on developing organic price elections. The report was transmitted to the House and Senate Agriculture Committees in March 2015. The report outlines RMA’s progress on and strategies for establishing organic price elections.
In a provision NSAC helped champion, the 2014 Farm Bill required USDA to establish organic price elections for all organic crops by the 2015 crop insurance year, which began in July 2014. Though clearly not making that deadline, the new report demonstrates a good faith effort to speed up progress toward that overdue goal.
This is an update of a similar report from March 2014, which is summarized at the start of this report.
There are crop insurance policies available for over 120 crops although many are only offered in very limited geographical areas. There are currently 26 crops with organic price elections, including 10 new elections that were added for the 2015 crop year.
In the new report RMA notes that for the 2015 crop year they now have organic price elections for 25 percent of the commodities that they offer crop insurance coverage for. This is up from just four percent in 2011.
If you include crops that can be insured at the organic price when they are grown under a contract – known as a Contract Price Addendum – the percentage of insured crops with organic coverage increased to nearly 60 percent.
However, it must be noted that organic Contract Price Addendum are capped, so a farmer may not be able to insure the full premium price they receive for their organic crop.
What is an Organic Price Election?
An organic price election allows a farmer to insure an organic crop at the organic price for that crop instead of the conventional price. Many organic farmers are currently disadvantaged compared to their conventional counterparts because organic price elections have not been established for all insurable organic crops. This means that, should an organic producer suffer a loss, he or she would receive an indemnity based on the conventional price, which is generally considerably lower than the organic price.
New Report Outlines RMA’s Efforts
RMA requires detailed price information in order to develop organic price elections. Traditionally this information has been derived from publicly available price data that reflects the price at the first point of sale i.e. the farm gate price. This type of data does not exist for many organic crops or is more difficult to collect, which is why it has been more difficult for RMA to develop organic price elections.
Private Organizations – In order to address this problem RMA has retained a private contractor to identify and work with private organizations that will voluntarily provide the needed price information. These are most likely regional commodity organizations that collect price data from their members, which RMA could then use to develop an organic price election.
The report identifies fresh and processing apples (CA and AZ), table grapes and raisins (CA), and apples (ID, OR, WA, and CA) as commodities the contractor is collecting data. An organic price election already exists for fresh and processing apples from Washington but not for the other states. The report indicates that the data being collected could be used to develop organic price elections for 2016.
RMA is also working with its contractor to collect private pricing data for sweet corn (CO, FL, NY), tomatoes (FL), peppers (FL), and dry peas and lentils (MT, ND, and WA).
Finally, the report indicates RMA is planning to work with its contractor on a organic wheat price election. Wheat has the third highest acreage in the United States, but does not yet have an organic price election. All the other top crops do, including corn, soybeans, cotton, and sorghum.
NASS Organic Survey – RMA worked with NASS to fund a portion of the cost to field the 2014 Organic Production Survey as a follow-on to the 2012 Census of Agriculture and prior organic production surveys. The results, expected in the fall of 2015, may help RMA produce more organic price elections.
This important survey will need to be funded on at least a semiannual basis to provide RMA with the comparable trend data needed for the development of organic price elections.
The continued conduct of this survey will need to be prioritized and institutionalized by NASS with or without RMA’s continued funding. RMA committed $1.4 million to the 2014 survey, a small price for the creation of an insurance product for billions of dollars in organic production.
Agricultural Marketing Service – One of the methods that RMA is looking to as a possible method to develop organic price elections is the use of price factors. This would essentially be a formula what would allow RMA to use price data that does not represent the price the farmer receives, such as the wholesale or retail prices, to work back and estimate the farm gate price needed for insurance purposes.
USDA’s Agricultural Marketing Service (AMS) collects a large amount of organic sales data, but does so at the shipping point, terminal market, movement, and retail levels. As an example, in 2014 AMS collected information on 126 organic crops from terminal markets up from 71 in 2005.
However, without farm gate level data or price factors, the data currently collected by AMS is not that helpful to RMA.
There are several commodities noted in the report that AMS collects data on that have the potential to be used to develop price factors for organic price elections. These include lemons (CA), oranges (CA and AZ), and blueberries (GA).
As a positive development RMA and AMS are planning a pilot study to collect farm gate level price data on at least one crop. If successful, this could be another route for developing a variety of new organic price elections.
Whole Farm Revenue Protection as an Alternative?
There is another option for producers of organic crops that are interested in being able to insure their crops at the organic price; the new Whole Farm Revenue Protection (WFRP) policy, championed by NSAC as part of the 2014 Farm Bill, was rolled out by RMA for the 2015 crop year.
This policy, unlike traditional single crop yield or revenue insurance, is not intended for a single specific crop, but for all the crops and livestock grown or raised on a single farm. The policy insures the farms revenue and not each crop individually. This means that organic farmers can insure the their crops at the organic price they receive.
Farmers interested in this policy should start by reviewing RMA’s fact sheet on the new WFRP policy and then talk to their crop insurance agent about the records they will need to assemble. RMA has also released a cost estimator to help farmers decide if WFRP is right for them.
NSAC’s View on RMA’s Progress
RMA faces many challenges at it seeks to fulfill the mandate given it by Congress to develop organic price elections. We appreciate the work that has been put into this effort and will continue to encourage RMA to think of creative ways to develop organic prices elections.
While we understand the need for RMA to be in possession of a fair amount of price data in order to meet its obligation to develop actuarially-sound policies, it must also keep in mind Congress’s mandate on organic price elections.
RMA has devoted much effort to implementing the Actual Production History Yield Exclusion provision of the 2014 Farm bill in time for the 2015 crop year. The mandate for a yield exclusion could never be described as actuarially sound, but RMA was required by Congress to pursue it.
We hope that RMA will show a similar level of commitment to the development of organic price elections so that a growing portion of farms can insure their crops at the price they actually receive and are not penalized because of their innovation.