I have previously highlighted the beginning farmer benefits in the Non-Insured Crop Disaster Assistance Program (NAP); see 2014 Farm Bill Makes Changes to the Noninsured Crop Disaster Assistance Program. But the 2014 Farm Bill also contains new beginning producer benefits for the crop insurance program as well. These benefits range from exemption from certain administrative fees, 10 additional percentage points of premium subsidy, use of past production history (if certain conditions are met), and increased substitute Yield Adjustments if the beginning producer has an ownership/interest in the crops or livestock during the 5 year period. Each will be discussed in more detail.
Qualifying for the Benefit
Typically, USDA defines a beginning producer as one who has operated a farm or ranch for 10 years or less as a sole operator or with others who have also operated a farm or ranch for 10 years or less. This definition will not apply for beginning producer benefits for crop insurance purposes. The law provides that for USDA-Risk Management Agency (RMA’s) beginning producer benefits, the producer will need to have had an insurable interest in crops or livestock for 5 years or less. An insurable interest exists even if you did not insure the crop or livestock.
This is probably easier to explain in an example. Let’s say Ann graduated high school and was hired as a traveling salesperson. While employed for the next 10 years, Ann is a part owner of her parent’s farm LLC. In 2015, Ann returns to manage the farm and wants to purchase crop insurance utilizing beginning farmer benefits. Ann would not qualify since for the previous 10 years she has been a part of her family’s farm LLC and has had an insurable interest in the crops. But if Ann did not have an ownership share/interest in the crops or livestock, was not a part of the family farm LLC and then came back to manage the farm after 10 years, she would potentially qualify for the beginning farmer benefits (more on this in a minute).
There are some exceptions to this 5-year requirement. Beginning producers can exclude years with an insurable interest while under the age of 18. Beginning producers may also exclude periods while enrolled in post-secondary studies, but this cannot exceed 5 crop years. Beginning producers may also exclude periods while on active duty in the U.S. military. From our previous example, instead of getting a job out of high school, Ann goes to the University of Maryland and graduates in 4 years with an undergrad degree. While at the University of Maryland, she actively works on the family’s farm and helps in the management decisions. If Ann goes and starts her own farm, then she would potentially qualify for all 5 years of the crop insurance benefits for beginning producers and may also be eligible to benefit from being able to use the yield history of the farm on which to base her protection.
For beginning producers using business entities, 10 percent or more of the substantial interest holders in the business entity will need to qualify as beginning producers. From our earlier example, this would be true if Ann moved home and joined into a corporation with her dad who has been farming for 25 years. The corporation would not qualify to receive the beginning farmer benefits. Although Ann qualifies for the beginning farmer benefits, her father has had an insurable interest in a crop or livestock for more than 5 years.
Once you have 5 crop years of an insurable interest in a crop or livestock then you are no longer eligible for the beginning producer benefits. Once you apply for the beginning producer designation, it is continuous till the earliest of one of these occurs:
You have had an insurable interest in a crop or livestock for more than 5 crop years;
You have utilized 5 years of beginning producer benefits; or
You cancel the benefits.
For example, if Ann had an insurable interest in a crop or livestock for 3 prior crop years, then she would only be eligible for the next 2 crop years.
Beginning Producer Benefits for Crop Insurance
A qualifying beginning producer can potentially receive four benefits in the crop insurance program. These benefits are designed to help start your operation. First, a qualifying beginning producer will receive an exemption from paying the administrative fee for catastrophic (CAT) coverage and additional coverage.
Second, a qualifying beginning producer can receive an additional 10 percentage points of premium subsidy for additional coverage policies with a subsidy premium. For example, if Ann selects Yield Protection coverage, receives a subsidy factor of 0.48, and is a beginning producer, then she would see that factor increase to 0.58. For policies that do not have subsidy premium, then the beginning farmer would not qualify for the additional subsidy premium.
Third, a qualifying beginning producer can utilize the actual production history (APH) of a farming operation that producer was previously involved in. To qualify for this option, the beginning producer would have previously been involved in the decision making or physical activities necessary to produce the crop or livestock on the farm. Building on our previous example, Ann works on her dad’s farm till he retires and she takes the farm over. Ann would be able to transfer her dad’s APH yields to use when she purchases crop insurance. The crop insurance company would use the higher of the transferred yield or the applicable variable transitional yield (T-yield). Qualifying beginning producers may only transfer an actual yield, and not any non-actual or assigned yields or any actual yields prior to use of a non-actual or assigned yield.
Fourth, a qualifying beginning producer may utilize 80 percent of an applicable T-yield, instead of the normal 60 percent, as a substitute Yield Adjustment. A qualifying beginning producer will only receive the benefits of the 80 percent of the applicable T-yield till no longer qualifying for the beginning farmer benefits. When the beginning producer is no longer eligible, then the replacement yield will become 60 percent of the T-yield.
Wrap Up
The 2014 Farm Bill provided new benefits to qualifying beginning producers. These benefits are designed to encourage beginning producers to participate in the crop insurance program and take away some of the disadvantages faced by new participants under the crop insurance program. Beginning producers should check with their crop insurance agent to discuss how these benefits could impact their current coverage. For more information on beginning farmer programs in Maryland check out the Beginning Farmer Success website. If you have additional thoughts on areas Howard or I should be covering related to crop insurance or the farm bill, please let me know at lgoering@umd.edu.
References
USDA-Risk Management Agency. Agricultural Act of 2014 – Beginning Farmer and Rancher. Washington D.C.: Risk Management Agency Bulletin, PM-12-028. Internet site: http://www.rma.usda.gov/bulletins/pm/2014/14-028a.pdf.
USDA-Risk Management Agency. Beginning Farmer and Rancher Benefits for Federal Crop Insurance. Washington D.C.: Risk Management Agency Fact Sheet, June 2014. Internet site: http://www.rma.usda.gov/pubs/rme/beginningfarmer_2014.pdf