The U.S. Department of Agriculture (USDA) has expanded the protection available under crop insurance policies for farmers growing organic crops. The USDA announced last week that farmers transitioning from the production of traditional crops to more expensive certified organic crops can now insure their crops up to their contract price (vis-à-vis third-party buyers), within federally approved limits. This is a significant and welcome change in the rapidly growing organic segment of the U.S. food market—one with estimated sales of approximately $40 billion dollars annually.
Previously, farmers transitioning to organic crops could insure their crops only at the same prices as traditional farmers, based on the USDA’s Risk Management Agency’s “price election” benchmark. Traditional price elections generally do not account for the increased costs of producing the certified organic crops. Farmers in this transition period can now take advantage of the USDA’s “Contract Price Addendum” to insure their organic crops at the contracted-for price, instead of under the USDA’s price election guidelines, pursuant to formulas under the Contract Price Addendum.
Prices designated for traditional crops under the price election guidelines are, not surprisingly, lower than the price elections for certified organic crops, and are substantially lower than the contract prices for organic crops. The Contract Price Addendum provides for a maximum—or upper limit—contract price, which varies by crop. According to the USDA’s Contract Price Addendum National Fact Sheet, “[m]ost crops have a maximum value of 2 times the announced conventional price election or 1.5 times the announced premium organic price election.” Contract prices now better reflect the actual value of the crops that farmers are seeking to have insured. For farmers with multiple contracts with different prices for a single crop, the Contract Price Addendum applies a weighted price average.
The Contract Price Addendum is available for 73 different crops. The USDA has also expanded the availability of organic price elections from four crops in 2011 to 57 available today. The organic premium price elections similarly allow organic producers to insure their crops closer to their market value than traditional price elections.
Federal subsidies can cover more than 50 percent of farmers’ premiums on crop insurance policies. Such valuable subsidies make crop insurance policies financially attractive to farmers, and insurers therefore have significant financial incentive to keep their policyholders satisfied by paying claims more quickly – and with less contention – than is often the case with other types of policies that are unsupported by the federal government. This relationship is subject to significant change, depending on Congress’s continued subsidization of crop insurance.