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1 Adjusted Gross Revenue-Lite (AGR-Lite) Dr. G. A. Art Barnaby, Jr Kansas State University Phone: (785) 532-1515

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Presentation on theme: "1 Adjusted Gross Revenue-Lite (AGR-Lite) Dr. G. A. Art Barnaby, Jr Kansas State University Phone: (785) 532-1515"— Presentation transcript:

1 1 Adjusted Gross Revenue-Lite (AGR-Lite) Dr. G. A. Art Barnaby, Jr Kansas State University Phone: (785) Check out our WEB at: AgManager.info

2 2 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 Adjusted Gross Revenue-Lite (AGR-Lite)

3 3 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. Adjusted Gross Revenue-Lite (AGR-Lite)

4 4 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 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 6 Kansas Insurance Profile Kansas produced $8.75 billion in agricultural products in % ($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 7 Top Uninsurable Commodities with Acreage Grass5,621,672 Alfalfa908,218 Rye53,175 Triticale37,641 Millet25,512 Clover23,977 Lespedeza23,303 Mixed Forage6,546 Pecans2,953 Peas2,597 Cattle/Calves 6,650,000 (Head) Hogs & Pigs 1,780,000(Head) Dairy 111,000(Head) Sheep 106,000 (Head)

8 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 9 Coverage Choices & Limits Govt Subsidy Coverage Payment Minimum # of Commodities* Maximum Annual Income** LevelRate 59%65751$2,051,282 59%65901$1,709,401 55%75 1$1,777,777 55%75901$1,481,481 48%80753$1,666,666 48%80903$1,388,888 *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 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 11 AGR Pilot vs AGR-Lite ComparisonAGR PilotAGR-Lite Maximum Liability$6,500,000$1,000,000 Animal or Animal Product Limit 35 % of Allowable Income None MPCI RequiredYesOptional Coverage Level65,75, 80 Payment Rate75, 90

12 12 How is Coverage Established? Federal Income Tax Records Usually Schedule F Current Years Farm Plan Cash Flow Budget

13 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 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 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 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 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 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 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 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 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 22 Example AGR-Lite 1 1 Prepared 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 , – or Andrew Saffert 2 The expected income is generated from the annual farm plan similar to a cash flow budget for the upcoming year.

23 23 Example AGR-Lite

24 24 Example AGR-Lite 1 1 Prepared 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 , – or Andrew Saffert 2 The expected income is generated from the annual farm plan similar to a cash flow budget for the upcoming year.

25 25 Example AGR-Lite 1 1 Prepared 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 , – or Andrew Saffert 2 The expected income is generated from the annual farm plan similar to a cash flow budget for the upcoming year.

26 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 27 KS Counties without a Wheat GRP/GRIP Offer

28 28 Does GRP & GRIP Fit Great Plains Agriculture? GRP/GRIP Does Provide Reasonable Protection for: Drought Freeze Excess Moisture

29 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 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 31 Cheyenne Wheat

32 32 Rawlins Wheat

33 33 Ottawa Wheat

34 34 Compare Cheyenne, Rawlins & Ottawa

35 35 Compare Cheyenne, Rawlins & Ottawa

36 Warning: NOT a K-State Slide

37

38

39 exp yield as % of 33-year average yield; no practice specified

40 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 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: Check out our WEB page at


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