Hemp in the World of Insurance
Let’s switch up the direction here and talk about hemp. Boy, this will be something different to insure! Being in the crop insurance business now for 34 years, there is always something changing. When things change, The Home Agency wants to be the leader of that change, the experts. It shouldn’t be a surprise to anyone that we are going to be doing our best to write all the Hemp we possibly can throughout the Midwest.
The 2018 Farm Bill legalized hemp, subject to state authorization. The USDA authorized the development of crop insurance but, due to the lack of production history, the introduction of subsidized crop insurance has just begun. At the end of October, the USDA released a rule establishing the U.S. Domestic Hemp Production Program, with provisions regarding THC testing and the disposal of plants with THC levels > 0.3%. The USDA opined that this rule would make hemp farmers eligible for USDA loan programs, disaster assistance, crop insurance and conservation, beginning with the 2020 season. However, significant questions remain regarding testing (what, when, how) under the program.
Weather is the Biggest Risk to Growing Hemp
According to the 2019 U.S. License Report from Vote Hemp, 230,000 acres of hemp were planted this year, with as much as 40%-50% (115,000 – 138,000 acres) not harvested, due to crop failure, non-compliant crop, and other factors. Most of that lost production was due to adverse weather!
Whole Farm Revenue Protection (WFRP)
The WFRP program allows coverage of all revenue of commodity crops produced on a farm, up to a total insured revenue limit of $8.5 million. WFRP is popular for specialty crops and organic commodities and is available for the 2020 hemp crop grown for fiber, flower, or seeds.
WFRP has several limitations:
- Growers must comply with applicable state, tribal or federal regulation for hemp production and have a contract
- Forced destruction of hemp containing > 0.3% THC on a dry weight basis will not be an insurable WFRP loss (adverse weather tends to increase THC levels)
- Hemp will not qualify for replant payments under WFRP, making excess precipitation protection essential for risk management purposes
- WFRP insured revenue limitation of $8.5M is inadequate for many prospective insureds
- Must provide five consecutive years of Schedule F’s or other farm tax forms
- Must grow at least three commodities to qualify for 80% and 85% coverage levels, leaving a significant retained coverage gap
- WFRP claims are settled only after taxes are filed for the policy year
Pilot Crop Insurance Program
A pilot program is currently under development for 2020. On December 23, 2019, USDA’s Risk Management Agency (RMA) announced a new crop insurance option for hemp growers in select counties of 21 states in 2020. The pilot insurance program will provide Actual Production History (APH) coverage under 508(h) Multi-Peril Crop Insurance (MPCI) for eligible producers in certain counties in Alabama, California, Colorado, Illinois, Indiana, Kansas, Kentucky, Maine, Michigan, Minnesota, Montana, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Tennessee, Virginia, and Wisconsin.
Early indications are that limitations under the pilot will be similar to WFRP, with no protection for prevented planting, quality/prevented harvest issues, or if THC>0.3%. It appears likely that only a portion of production costs will be covered.
In closing, we talked about insuring Hemp; something things that we have not dealt with in the past. Like I have always said, we invite change and we look forward to the challenge. Contact us if you are interested in hearing more on this topic!
-Jim
