Nature is a bit unpredictable, making farming an important industry to insure. One huge avenue of farming coverage is crop insurance, a common protective measure that farmers and ranchers get to protect their investments.
The World Wildlife Fund (WWF) found that an estimated 10 million tons of specialty crop types grown in agricultural settings each year never get harvested or make it onto people’s tables, which is almost a third of what’s grown in total. Huge losses occur annually because of several natural reasons outside of farmers’ control, necessitating a type of protective insurance product that can keep them on their feet.
Want to learn more about crop insurance and why this type of security is essential for growing and protecting your bottom line? Continue reading.
What Is Crop Insurance?
Crop insurance is a risk management tool that farmers and ranchers can receive to help protect their crops against drops in price or decreased revenue.
There are two types of crop insurance you should be aware of:
- Yield-based: Provides coverage if the actual yield obtained becomes less than what was expected. There are two types of insurance policies that function like this: multiple peril agriculture insurance and a group risk plan.
- Revenue insurance: Delivers protection against a decrease in generated revenue as a result of a loss of production or a change in the market. In this category, there are two types of plans: crop revenue coverage and revenue assurance.
Another coverage type to consider is crop hail insurance. In parts of the country where hail is frequent, farmers generally purchase this coverage level to protect high-yielding crops. Often, crop hail insurance is bought as a supplement to the yield-based multiple peril agriculture insurance, depending on needs.
What Does Crop Insurance Cover?
Your amount and type of coverage will depend on the plan you choose, but generally, a crop insurance program covers the following natural causes of loss:
- Drought.
- Excessive moisture.
- Hail.
- Wind.
- Frost.
- Insects.
- Disease.
- Changes in harvest price.
Unfortunately, many types of risk aren’t enacted by natural causes, meaning they’re not protected by insurance coverage. The items normally not covered by crop insurance include:
- Damage from pesticide drift.
- Fire.
- Negligence.
- Failure to follow good farming practices.
Risks Associated With Farming
Over the years, there have been many reasons for cover crop yield loss or a decrease in revenue that generally triggers a crop insurance claim. Crop losses are any factors that damage crop yield, like drought, excessive rain or hail or drops in harvest price.
The large majority of insurance product claims are caused by losses as a result of unexpected weather patterns, which have only been made worse by the ever-changing climate. As abnormal weather events continue to rise, more and more insurance payments will be necessary for whole farm revenue protection. In fact, between 1995 and 2022, most crop insurance program indemnities were paid for weather-related causes of loss, according to the United States Department of Agriculture Risk Management Agency.
A Bounty Harvest: Benefits of Effective Crop Insurance
Crop insurance protects farmers and ranchers from financial loss due to unforeseen events and encourages them to invest in their agricultural practices. There are many advantageous reasons to invest in this insurance type and coverage level, including:
Financial Protection
Farmers rely solely on their harvest to provide for their income and living expenses. When that’s threatened, it not only risks their jobs, but their livelihood as well. This safety net offers financial protection against losses caused by natural disasters and helps farmers and ranchers recover from lost investments. It also assists with stabilizing their income and reduces their vulnerability to catastrophic financial losses that unforeseen events can cause.
Access to Credit
Many financial institutions want farmers to have crop insurance to qualify for some types of agricultural loans or lines of credit. So, by having this type of coverage, ranchers are more likely to have credit to access when they need it. Crop insurance can serve as collateral, easing the pressure to access the money necessary for planting, equipment and other agricultural expenses.
Price Stability
Crop insurance stabilizes commodity prices by reducing the impact of drops in the market or supply changes caused by crop failure. It balances out the rural economy by preventing financial crises in agricultural communities, ensuring the ripple effect of significant losses doesn’t impact other businesses and jobs in the area.
Food Security
Crop insurance coverage can play a leading role in ensuring food security by helping to maintain food production, no matter what outside forces may occur. The world is experiencing food shortages, causing acute food insecurity in 79 different countries, according to the World Food Programme. Any measures that keep farmers in production and able to harvest crops is a beneficial step for both that farmer and the globe at large. When farmers have a safety net to catch them in the case of an emergency, they’re more likely to continue planting crops even in uncertain conditions. This helps maintain a consistent food supply and helps fill gaps in the supply chain.
Improve Productivity
It’s hard to put money toward new farming products when going through an uncertain season. When farmers know they have a barrier between themselves and financial hardships, they may be more willing to invest in technologies, practices and advances that can increase cover crop yields and overall productivity. Safety can be an incentive for investment, encouraging farmers to lead with more sustainable and efficient farming practices despite not knowing what exactly is around the corner.
Faster Disaster Recovery
Even with the best insurance policies on your side, disaster can still strike at the most difficult times. In the event of natural emergencies like hurricanes, wildfires or floods, a crop insurance policy can be a vital component of picking up the pieces and resuming production. Without financial assistance, recovering from any calamity can take years — if recuperation is even possible. Some farms are never able to bounce back, forcing the family to make very difficult decisions about the future of their business and well being.
Risk Management
Having an action plan and proactive measures in place is beneficial for any industry, especially one as ever-changing and impactful as agriculture. Crop insurance is a crucial tool to control farming risks, allowing farmers to transfer some of the associated threats to insurance companies or banks. This cuts back on the overall exposure to financial instability due to factors beyond their control and encourages ranchers to stay in business and continue growing much-needed crops.
Protect From Crop Losses With Bank Midwest
A crop insurance policy leads to long-term stability of family farms all over the country. Put good risk management practices in place by choosing to partner with Bank Midwest. Our team has years of experience and knowledge in the farming industry, and we want to help reduce financial hardships for you and your family.
When you speak with a Bank Midwest employee, you talk to someone who cares about your agricultural business like one of your own loved ones or employees. Our team understands how important it is to continue your family’s legacy through your farm, making protective measures that much more crucial.
Contact Bank Midwest to learn more about protecting every acre of your land.