Questions & Answers
Q. What are the major kinds of risk faced by a farm
business?
A. The risks faced by a farm business can be summarized using
five categories:
- production risk-the risk of lower quantity or quality of
output;
- price or market risk-the risk of low output prices (or high
input prices) or the risk of limited market outlets;
- financial risk-the risk that debt cannot be repaid or that
credit is not available when needed;
- institutional risk-the risks that come from changing government
policies; and
- human or personal risk-the risk that the business could be
disrupted by illness, accident, death, or other personal
problems.
Q. What are the major causes of crop losses in the United
States?
A. No perfect measure of crop losses exists, but USDA's Risk
Management Agency does have data on the sources of losses for
claims filed under Federal crop insurance. Since 1988, about 40
percent of crop insurance indemnities have been due to drought;
about 30 percent to excessive moisture, rain, or floods; and about
10 percent to frost, freeze, and cold weather; and about 10 percent
to hail. Note that uninsured crops might have somewhat different
causes of loss. Also, causes of yield loss will vary by year, by
crop, and by region.
Q. What are the main government programs that address farm risk
management?
A. The main government programs related to farm risk management
are:
- crop yield insurance and crop revenue insurance;
- supplemental agricultural disaster assistance (SADA)
programs;
- loan deficiency payments, which protect producers of major
commodities against low prices;
- counter-cyclical payments (CCPs), which are based on current
prices and historical production;
- average crop revenue election (ACRE), which are based on gross
revenue calculated from market prices and on current
production;
- the Noninsured Assistance Program (NAP) for those specialty
crops for which crop insurance is unavailable;
- emergency loans;
- emergency haying and grazing assistance; and
- the Emergency Conservation Program for farmlands damaged by
natural disasters.
Q. For which crops is federally backed insurance available?
A. USDA's Risk Management Agency (RMA) has approved
insurance coverage for more than 100 crops representing the great
majority of the value of U.S. crop production. The Federal
government provides both a premium subsidy and reinsurance backing
for these insurance policies. Some crops can be insured under a
variety of existing plans, while others can be insured only under
pilot programs of limited scope and duration. The RMA Crop
Policies web page offers information on crops for which
insurance is available, as well as instructions on how to obtain
crop insurance.