Insurance, Really?

This is the most boring post ever, but potentially the most important.  Imagine this scenario: 

You’ve invested years of your life and your entire life savings starting the best farm ever.  You bought a million seed and you are a week away from harvest. Boom! A tornado/hurricane/nor-easter/ice-storm takes out your farm. 

What happens? You have no insurance:  Call your mom and see if she has an extra bedroom.  It is going to be a long road.

Ice destroying a farm in the Northeast.

You have catastrophic coverage for weather-related losses from the Farm Service Agency (known as "NAP" or Non-insured Crop Disaster Assistance Program) and your original seed receipts. Better. You would likely get $16,380.  If you are in Massachusetts here is the calculation the adjuster will make (each state is different).

1. By the end of year one you would have lost 70%.
2. In year two you would lose another 60%
3. Hence at the end of year 2, they assume you have 120,000 oysters ready for sale.
4. At $.51/oyster (the established market rate for Mass) that is worth $61,200--but unless you have paid for an upgraded plan, they only pay 55% of the market price $33,660
5. They would then pay 50% of the value: $16,380

You have Catastrophic insurance from NAP and a verifiable inventory from the day before the catastrophic event that shows you have 600,000 market size oysters. Now you are in better shape. Instead of taking conservative averages, the adjuster can take your inventory and use it as the baseline.  You have $306,000 of crop value. Using the same calculations above, they pay out 50% of the value at 55% of the established market price: $84,120.

Bottom line: 

Basic coverage is cheap: Basic NAP coverage costs $325/year--and it is free if you have been farming for less than 10 years. And they do have better coverage--like paying out at market price instead of 55% of market price. Ask your county FSA office for details.

Inventory Records are critical: You need a reliable, verifiable, and contemporaneous account of your inventory.  What each adjuster will accept is a bit different, but a key is to have no large gaps in the records.  If you show up and say “I counted all my bags yesterday and here is what I have” and you don’t have records of doing that each month for the last 12 months you are probably going to be out of luck.  

Hurricane Michael taking out farms on the Gulf Coast

If you have a record in  your notebook of all your activities for the last year with quantities of equipment and stocking density you are going to be in much better shape.  If you dropped that book overboard and it got wiped out? Good luck. Of course, this is self-serving, but if you have a cloud based record of all your inventory and activities for the last 2 years, push a button and send it off.  You will be back in business in no time.

Here is the recommendation from the ECSGA newsletter:

If you are not keeping meticulous records now you should start. ....This is probably a good time to invest in one of those nifty new inventory management software programs.

You are still better off with no disaster, but these insurance programs will help you get back on your feet.  As you get bigger and more sophisticated you can and should look at other options. NAP and good inventory records are a great place to start.  Hopefully you will never have to use it.  

Your to-do's  

1. Call your local FSA office and sign up for NAP by Sept 1st
2. Keep inventory records (Call us if you want help).