Questions & Answers
Q. What are the major kinds of risk faced by a farm business?
A. The risks faced by a farm business can be summarized using five categories:
- production risk-the risk of lower quantity or quality of output;
- price or market risk-the risk of low output prices (or high input prices) or the risk of limited market outlets;
- financial risk-the risk that debt cannot be repaid or that credit is not available when needed;
- institutional risk-the risks that come from changing government policies; and
- human or personal risk-the risk that the business could be disrupted by illness, accident, death, or other personal problems.
Q. What are the major causes of crop losses in the United States?
A. No perfect measure of crop losses exists, but USDA's Risk Management Agency does have data on the sources of losses for claims filed under Federal crop insurance. Since 1988, about 40 percent of crop insurance indemnities have been due to drought; about 30 percent to excessive moisture, rain, or floods; and about 10 percent to frost, freeze, and cold weather; and about 10 percent to hail. Note that uninsured crops might have somewhat different causes of loss. Also, causes of yield loss will vary by year, by crop, and by region.
Q. What are the main government programs that address farm risk management?
A. The main government programs related to farm risk management are:
- crop yield insurance and crop revenue insurance;
- supplemental agricultural disaster assistance (SADA) programs;
- loan deficiency payments, which protect producers of major commodities against low prices;
- counter-cyclical payments (CCPs), which are based on current prices and historical production;
- average crop revenue election (ACRE), which are based on gross revenue calculated from market prices and on current production;
- the Noninsured Assistance Program (NAP) for those specialty crops for which crop insurance is unavailable;
- emergency loans;
- emergency haying and grazing assistance; and
- the Emergency Conservation Program for farmlands damaged by natural disasters.
Q. For which crops is federally backed insurance available?
A. USDA's Risk Management Agency (RMA) has approved insurance coverage for more than 100 crops representing the great majority of the value of U.S. crop production. The Federal government provides both a premium subsidy and reinsurance backing for these insurance policies. Some crops can be insured under a variety of existing plans, while others can be insured only under pilot programs of limited scope and duration. The RMA Crop Policies web page offers information on crops for which insurance is available, as well as instructions on how to obtain crop insurance.