September 2018
The Business of Farming

Rainfall Index Insurance for Pasture, Rangeland, and Forage

What is it and how can I enroll?

The Rainfall Index insurance program for Pasture, Rangeland and Forage (RI-PRF) has been available for livestock producers in Alabama since its pilot run in 2009. In 2017, roughly 121,097 acres were insured in this program throughout the state of Alabama, representing 5.3% of Alabama’s pastureland. Alabama has some of the lowest participation rates in the country, despite its large reliance on grazing for livestock production. With the current subsidies involved with RI-PRF, average returns per acre in Alabama have been positive most years over the 2009-2017 period. So why are our RI-PRF participation rates so low? I attribute this to lack of awareness (or perhaps skepticism) of the program. This article provides an overview of the RI-PRF program and useful references if you would like to implement it as a risk management tool in your operation. (I will also note that a similar program exists for Alabama honey producers called the Apiculture Pilot Insurance Program. I will not discuss it here, but a reference is provided at the end of the article.)

RI-PRF is meant to insure livestock producers against lower than average rainfall which could decrease forage production, and ultimately would increase livestock feeding costs. This program covers perennial pasture, rangeland or forage so acreage that is only in annual forage is not covered by this insurance.

RI-PRF is index insurance, meaning policies are not based on actual forage yields. Payments and coverage are based on a grid system, where grids cover an area of 0.25 degrees latitude by 0.25 degrees longitude (roughly 12 miles by 12 miles in Alabama). A policy is based on the specific grid in which pastureland is located. Rainfall index values are calculated by a weighted average of nearby National Oceanic and Atmospheric Administration (NOAA) weather stations, and are reported in relation to historical average rainfall in that grid.

 

To participate in RI-PRF, producers make a number of decisions:

  • Insured Acres: Number of acres to be insured

  • Intended Use: Haying or Grazing

  • If Intended Use is Haying:

  1. Irrigation Practice: Irrigated or Non-irrigated

  2. Organic Practice: Organic certified, Organic transitional or Not organic

  • Coverage Level: 70, 75, 80, 85, or 90%

  • Productivity Factor: 60-150%

  • Two-month Index Interval and Percentages of Value

 

Figure 1: Percentage of RI-PRF enrolled Alabama pastureland acreage in 2017 by two-month interval (Source: USDA RMA Summary of Business Reports and Data, 2017)

The crux of the RI-PRF insurance lies in the choices of coverage level and two-month intervals. Producers must choose two-month intervals in which they want to insure against low rainfall. Two-month intervals run from January-February to November-December, and a participant cannot choose overlapping intervals, i.e., March-April and April-May. The participant must also place a percentage of value into each chosen interval. The percentage of value would likely reflect the ranking of which month intervals matter most for forage production. Figure 1 displays the percentage of Alabama enrolled acreage in each two-month interval in 2017. The most popular intervals were January-February, March-April and September-October.

The coverage level chosen determines the percentage of average historical rainfall at which insurance coverage kicks in. For example, if a participant chooses 90% coverage and January-February and March-April intervals, an indemnity would be paid if the rainfall index in either January-February or March-April falls below 90% of its historical average. There are different subsidy levels depending on the coverage level. Subsidy levels range from 51-59%, with the lowest coverage level (70%) receiving the highest subsidy level (59%).

The choices of intended use, irrigation practice, organic practice and productivity factor reflect the practices a producer uses and influence the dollar amount of protection received per acre. County base values are calculated by USDA RMA and reflect forage yields and the prices of alternative feed when forage production is decreased. Participants can update the county base values to better reflect the values in their own operation by adjusting the productivity factor. Irrigated hay production often has a lower value than non-irrigated, because hay production would not be lost so producers are compensated only for the cost of irrigating. Additionally, the intended use of grazing receives a lower base value than haying.

Figure 2:  Per Acre Premium for Alabama pastureland enrolled in RI-PRF in 2017 by choice of two-month interval (Source: USDA RMA Summary of Business Reports and Data, 2017)

 

The insurance premiums vary depending on the per-acre value, month intervals and coverage levels chosen. As seen in figure 2, on average in 2017 the interval September-October had the highest premium per acre across both grazing and haying acreage, while the February-March interval had the lowest per-acre premium. There are trade-offs with choosing the per-acre value and coverage levels. The higher the coverage level, the higher the cost of the insurance but the higher the chance of a collected indemnity. Similarly, the higher the per-acre insured amount, the higher the cost of the insurance but also the higher the indemnity amount paid out with low rainfall.

Table 1 shows an example: a 2018 policy option for an Alabama hay producer in Geneva County. USDA RMA provides a useful online decision tool that producers can access to find their grid, explore policy options and costs, and plot out historical rainfall indices and policy outcomes. RI-PRF insurance can be purchased by any authorized crop insurance agent. The enrollment deadline for 2019 RI-PRF is November 15, 2018, and the premium payment deadline is September 1, 2019.

Table 1: Example 2018 RI-PRF Policy (green-colored boxes represent producer inputs)

As far as I can tell, RI-PRF seems to be a promising tool for livestock producers, especially at current subsidy levels. I encourage you to look into RI-PRF as a potential risk management strategy in your operation.

 

Additional Resources:

RI-PRF Online Decision Tool: https://prodwebnlb.rma.usda.gov/apps/prf

RI-PRF Policy Info: https://www.rma.usda.gov/policies/pasturerangeforage/

Apiculture Pilot Insurance Program Policy Info: https://www.rma.usda.gov/policies/ri-vi/apiculture.html

 

Brittney Goodrich is Extension Specialist, Agricultural Economics and Rural Sociology with Auburn University