What is crop insurance and how does it protect farmers?

How Does Crop Insurance Protect Farmers?

Posted by on Apr 20, 2020 in Insurance Advice

Many farmers depend strictly on the various insurance programs available from the government to protect their crops. There are many aspects of insurance covered under the Canadian Agricultural Partnership.

A comprehensive suite of insurance is available through the Business Risk Management (BRM) programs, which have been designed to reduce risks for farmers significantly. The volatility of farms and the many factors that can negatively affect harvests can make it impossible to foresee capacity challenges such as flooding and weather.

As a result, the government has taken a proactive approach to assist farmers with agricultural risk management. Here we look at what the government offers and provide recommendations on what additional insurance coverage is needed to protect all your assets.

AgriStability

AgriStability protects producers from large farming inclines, including:

  • Production loss
  • Increased costs
  • Market conditions

The government uses your allowable income and expenses for all the commodities you produce to calculate your margins and determine what’s available to protect your income.

AgriInvest

The government offers AgriInvest under the Canadian Agricultural Partnership (CAP). It is a 5 year, $3 billion investment by federal, provincial and territorial governments to help provide support to farmers by strengthening the agriculture and agri-food sector. This is a self-managed producer-government savings account that can help farmers manage small income declines, so you know where to invest to better mitigate risks and improve your market income.

The program allows you to deposit up to 100% of your Allowable Net Sales each year towards your AgriInvest account. The government then matches contributions of 1% of your Allowable Net Sales.

As your account grows, so too does the matching government contributions while you also earn interest. The account is yours, and you can withdraw funds at any time, just like a normal bank account.

When you withdraw money, your funds are first taken from the funds and interest gained from your government contributions, and then your own deposits. This cost-shared insurance helps protect you against natural hazards so you can reduce the financial impact you face when you experience production or asset losses. You choose based on what your farm produces:

  • Forage
  • Fresh Vegetables
  • Fruit, Honey and Bees
  • Grains and Oilseeds
  • Processing Vegetables
  • Specialty Products
  • Tobacco

Unfortunately, this is not available in the province of Ontario at this time. Therefore, you should speak to your insurance company to find ways you can have comparable sets up to assist you with smart financial savings to mitigate losses.

AgriRecovery

This is managed under a Federal-Provincial-Territorial (FPT) disaster relief framework. It works in hand with the BRM programs and is offered to assist agricultural producers who experience natural disasters. You can manage income and production losses experienced when disasters occur with a focus on the extraordinary costs required to recover from such disasters.

This would include costs not usually incurred under general farm operations. The program allows farmers to return to usual farm operations as quickly as possible to mitigate the financial impact caused by a disaster. Natural disasters only apply to:

  • Disease
  • Pests
  • Weather-related events, such as flooding or a tornado

This is helpful, but you might want to find out what is covered so you can decide if you want to add on to this type of coverage.

AgriRisk

This is a 5-year program under the Canadian Agricultural Partnership that continues to explore new risk management tools in three areas:

  • ARI Research and Development (R&D) stream contribution funding
  • ARI Microgrants
  • ARI Administration Capacity Building (ACB) stream

The government has committed approximately $55 million over the 5-year period, which ends on March 31, 2023.

The government will continue to collect and analyze data as well as to conduct actuarial work into potential financial tools such as insurance, price pooling and hedging tools they can provide. Issues they would consider addressing include:

  • Diseases in livestock and crops
  • Severe market price fluctuations
  • Producer revenue risk
  • Protecting against loss from contracts in new markets

The development will include areas such as the emergence of new agricultural sectors with research into risk assessments and strategies that can be applied. Educational tools to teach farmers how to better assess and manage risk could also be made available.

The goal is to explore areas of business that are beyond normal farm-related business risks. Therefore, things such as finances available for updating equipment, for example, would not be included or considered.

Additional Insurance

Your insurance broker can design tailored farm policies that can include coverage for all the following:

  • Harvested products of the soil
  • Milk
  • Eggs
  • Feed
  • Fertilizers
  • Herbicides
  • Pesticides
  • Livestock medications

You can also find extended coverage for consequential losses to refrigerated produce from a mechanical or electrical breakdown or power interruption. A broker will look at your potential risks and consider all perils to ensure when the worst happens; you’re covered.

To learn more about crop insurance and how it can protect your farm, call Oegema Nicholson at 613-704-7766 or contact us here.

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