Adjusted Gross RevenueLite AGRLite

1
Adjusted Gross Revenue-Lite (AGR-Lite)

• Dr. G. A. Art Barnaby, Jr
• Kansas State University
• Phone [phone]
• Email abarnaby_at_agecon.ksu.edu
• Check out our WEB at
• AgManager.info

2
Adjusted Gross Revenue-Lite (AGR-Lite)

• A Whole Farm Revenue Protection Plan
• Provides protection against loss of revenue from
  natural and named disasters and/or market
  fluctuations
• Approved for Producers in States of
• AK, CT, DE, ID, MA, MD, ME, NC, NH, NJ, NY, OR,
  PA, RI, VA, VT, WA, WV
• States approved to proceed with rating
• AZ, CO, HI, KS, MN, MT, NM, NV, UT, WI, WY

3
Adjusted Gross Revenue-Lite (AGR-Lite)

• Developed by PA Dept. of Agriculture (under
  section 508h of the crop insurance law) to make
  protection available to almost all producers.
• Expanded to other states through respective State
  Depts. of Agriculture.
• Kansas is working with Frontier Farm Credit
  (FFC), KS State Department of Agriculture, Topeka
  RMA, KFMA, and Kansas State University.
• Approved and backed by USDA.

4
Adjusted Gross Revenue-Lite (AGR-Lite)

• STAND-ALONE POLICY covering the whole farming
  operation
• OR
• UMBRELLA TYPE POLICY selected crops can also be
  protected by Multiple Peril or revenue crop
  policies.
• Note Loss payments from other insurance count
  towards AGR-Lite revenue guarantee.

5
What is covered under AGR-Lite

• Eligible Commodities Include
• Most Crops
• Animal Production (includes aquaculture)
• Animal Products (milk, honey, wool, etc.)
• Greenhouse Production
• Organic Production

6
Kansas Insurance Profile

• Kansas produced 8.75 billion in agricultural
  products in 2002.
• 98.8 (8.65 billion) derived from
• Cattle and calves - 5.7 billion
• Grains - 2.1 billion
• Hogs - 297.5 million
• Milk and other dairy - 248.5 million
• Hay and other production - 225million
• Nursery and greenhouse - 55.5 million
• 74 of agricultural production currently without
  risk protection.

7
Top Uninsurable Commodities with Acreage

• Cattle/Calves
• 6,650,000 (Head)
• Hogs Pigs
• 1,780,000(Head)
• Dairy
• 111,000(Head)
• Sheep
• 106,000 (Head)

• Grass 5,621,672
• Alfalfa 908,218
• Rye 53,175
• Triticale 37,641
• Millet 25,512
• Clover 23,977
• Lespedeza 23,303
• Mixed Forage 6,546
• Pecans 2,953
• Peas 2,597

8
What is covered under AGR-Lite

• Insurable Causes of Loss
• unavoidable natural disasters, that occurs during
  the current or previous insurance year
• including but not limited to, adverse weather,
  fire, insects, disease, wildlife, earthquakes,
  volcanic eruption, or failure of irrigation water
  supply, if applicable,
• market fluctuation (annual price change) that
  causes a loss in revenue during the current
  insurance year

9
Coverage Choices Limits
Must meet minimum income requirements.
Commodity Grouping is available for the
80-percent coverage level. The Maximum Annual
Income represents the maximum approved farm
revenue at each coverage level and payment rate
to be eligible for AGR-Lite due to the 1,000,000
maximum liability allowed.
10
AGR-Lite Protection Example( With 1 or more
commodity producing revenue)

• 5 year avg. revenue 300,000
• 75 coverage level 225,000 loss trigger
• Revenue produced 100,000
• Revenue loss 125,000
• 90 payment 112,500 loss
  payment

11
AGR Pilot vs AGR-Lite
12
How is Coverage Established?

• Federal Income Tax Records
• Usually Schedule F
• Current Years Farm Plan
• Cash Flow Budget

13
How are Claims Calculated?

• Federal Income Tax Records reflect sales
• Beginning and End of year inventories are used to
  determine change in value allocated to current
  year.

14
Where AGR-Lite makes sense

• Otherwise uninsurable commodities are covered
• Organic production is protected at realistic
  prices
• Direct Marketed production is protected at
  realistic prices
• Umbrella over selected individual crop coverages
• Bottom line for operation from severe economic
  loss
• Individual protection based on personal yield,
  quality and price history plus low price
  protection,
• Provide an alternative for farmers with reduced
  APH caused by multiple years of drought.

15
Major Issues with AGR-Lite

• AGR-Lite does not adjust for feed purchased.
• If it turns dry, and producers purchase hay to
  cover lost forage this loss may not be covered.
  This will lower Net Income but not Gross.
• If producers normally sell excess hay, then it is
  covered because there will be reduced hay sales.

16
Major Issues with AGR-Lite

• AGR-Lite does not include indemnity payments when
  calculating 5 years average Gross Income that
  will set future guarantees.
• This has no impact on current years indemnity
  payment but it lowers future guarantees reducing
  the effectiveness of AGR_Lite as a risk
  management tool for multiple year droughts.

17
Major Issues with AGR-Lite

• Currently cull cows are counted in the sales to
  count against the AGR-Lite guarantees and the 5
  year average tax return revenue. If the cows are
  sold as part of a herd reduction then the sales
  do not count against the guarantee.

18
Major Issues with AGR-Lite

• Market loan gains count against the AGR-Lite
  indemnity and are included in the 5 year average
  tax return revenue. This is a consistent policy.
  However, LDP payments are not included in the 5
  year average nor do they count against the
  guarantee.

19
Major Issues with AGR-Lite

• Currently the counter cyclical payment does not
  count against the AGR-Lite guarantee nor does it
  count in the 5 year average tax return revenue.
  This works in the favor of farmers because it
  does not reduce AGR-Lite payments in a loss year
  caused by lower prices.

20
Major Issues with AGR-Lite

• Currently AGR-Lite liability and premium is
  reduced by the amount of the APH or similar
  products liability and premium. This is
  consistent because it reduces AGR-Lite claims.
  However, GRIP and GRP products do not have the
  same effect because all of the liability is
  likely not at risk.

21
Major Issues with AGR-Lite

• Underwriting Rule. AGR-Lite should require
  submission of tax returns for all entities that
  buy, sell, or produce agricultural products that
  an insured has a financial interest.
• This would include entities that are not insured
  under an AGR-Lite policy in addition to the
  insured entity.

22
Example AGR-Lite1
1Prepared by Andrew Saffert (Graduate Student),
Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby,
Jr., and Dr. Michael R. Langemeier, Professors,
Department of Agricultural Economics, K-State
Research and Extension, Kansas State University,
Manhattan, KS 66502, Risk Profit August 17
18, 2006, Phone [phone], e-mail
Barnaby_at_ksu.edu, or Andrew Saffert
asaffert_at_mail.agecon.ksu.edu.
2The expected income is generated from the
annual farm plan similar to a cash flow budget
for the upcoming year.
23
Example AGR-Lite
24
Example AGR-Lite1
1Prepared by Andrew Saffert (Graduate Student),
Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby,
Jr., and Dr. Michael R. Langemeier, Professors,
Department of Agricultural Economics, K-State
Research and Extension, Kansas State University,
Manhattan, KS 66502, Risk Profit August 17
18, 2006, Phone [phone], e-mail
Barnaby_at_ksu.edu, or Andrew Saffert
asaffert_at_mail.agecon.ksu.edu.
2The expected income is generated from the
annual farm plan similar to a cash flow budget
for the upcoming year.
25
Example AGR-Lite1
1Prepared by Andrew Saffert (Graduate Student),
Dr. Jeffery R. Williams, Dr. G. A. (Art) Barnaby,
Jr., and Dr. Michael R. Langemeier, Professors,
Department of Agricultural Economics, K-State
Research and Extension, Kansas State University,
Manhattan, KS 66502, Risk Profit August 17
18, 2006, Phone [phone], e-mail
Barnaby_at_ksu.edu, or Andrew Saffert
asaffert_at_mail.agecon.ksu.edu.
2The expected income is generated from the
annual farm plan similar to a cash flow budget
for the upcoming year.
26
What is GRP GRIP

• GRP is a put option on expected county yield
• GRIP is a put option on county revenue
• Farmer has the basis risk, difference between
  county yield change and farm yield change

27
KS Counties without a Wheat GRP/GRIP Offer
28
Does GRP GRIP Fit Great Plains Agriculture?

• GRP/GRIP Does Provide Reasonable Protection
  for
• Drought
• Freeze
• Excess Moisture

29
Does GRP GRIP Fit Great Plains Agriculture?

• GRP/GRIP Does NOT Provide Reasonable Protection
  for
• Hail
• Flood
• No Prevented planting
• No Re-plant
• No Quality Loss adjustment
• Any spot Loss

30
Does GRP GRIP Fit Great Plains Agriculture?

• If APH is low caused by multiple year crop losses
• Low APH causes low guarantees and higher premium
  costs
• If the APH is real low then there is very little
  protection. GRP is based on at least a 30 year
  history, so coverage maybe much higher with lower
  premium.
• Trend yields that set expected county yield is
  the key.

31
Cheyenne Wheat
32
Rawlins Wheat
33
Ottawa Wheat
34
Compare Cheyenne, Rawlins Ottawa
35
Compare Cheyenne, Rawlins Ottawa
36
Warning NOT a K-State Slide
37
Warning NOT a K-State Slide
38
Warning NOT a K-State Slide
39
2007 exp yield as of 33-year average yield no
practice specified
40
GRP/GRIP Summary

• Little/no Protection for Hail, wind, flood or
  other spot losses
• No Prevented Planting or Re-plant Protection
• GRP insured growers worried about Rust may want
  to change to APH
• Farmer can suffer a total loss and receive no
  payment, maybe a lender concern.

41
Policy Issues

• The Corn Belt has generated underwriting gains
• Those gains allow RMA to hit the targeted loss
  ratio
• If the those farmers shift from APH to GRIP, then
  RMA may (will ?) lose a major region with
  consistent underwriting gains
• Farm Bill based on a GRIP type program?

42
Thank You DR. G. A. ART BARNABY, JR. KANSAS
STATE UNIVERSITY PHONE [phone] EMAIL
abarnaby_at_agecon.ksu.edu Check out our WEB page
at http//www.AgManager.Info