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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;
- 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;
- the Non-insured Assistance Program (NAP) for those specialty
crops for which crop insurance is unavailable;
- emergency loans;
- emergency haying and grazing assistance;
- the Emergency Conservation Program for farmlands damaged by
natural disasters; and
- crop loss adjustment and market loss (low price) adjustment
payments approved on a special or emergency basis in the last
few years.
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
website contains a current list of crops for which insurance
is available, as well as information on how to obtain crop insurance.
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